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Morningstar DBRS examines climate change impact on airport sector

written by Newsdesk | March 20, 2024
Morningstar DBRS examines climate change impact on airport sector
Hong Kong Airport (Getty Images)

Morningstar DBRS, a global credit ratings business, has released a commentary exploring the potential impact of climate change on the airport sector, stating that the near-to-medium term impact is expected to be low.

The report highlights that climate change risk entails both physical and transitional risks that could potentially affect an issuer’s business and financial risk profiles. Transitional risk for the airport sector primarily relates to the evolving regulatory landscape associated with climate change that could potentially reduce the demand for air travel either directly or indirectly.

However, Morningstar DBRS believes that based on the locations and economic and traffic profiles of the airports in its rated portfolio, the near-to-medium term impact of climate change risk will be low. Nonetheless, airports that serve catchment areas with weaker economic and business profiles and are more vulnerable to the impact of physical and transitional risks may be more challenged in mitigating these risks.

The report also notes that airport operators are undertaking various initiatives to decarbonize their operations, such as increasing the use of renewable energy, implementing energy efficiency measures, and purchasing electric or hydrogen fuel cell ground vehicles.

The aviation sector as a whole is undergoing a major transformation to decarbonize and reach net zero by 2050, with the transition to Sustainable Aviation Fuel (SAF) being one of the most important solutions for airlines. However, the use of SAF is likely to increase the price of air fare, as it is currently at least double the price of conventional jet fuel.

Morningstar DBRS does not expect physical risks to have a material impact on the airport sector in the near-to-medium term, but in the long term, without external support or extraordinary resources, it may become challenging for smaller airports susceptible to extreme weather events to cope with the physical risks of climate change.

The report considers the transitional risks associated with climate change to be more impactful and challenging to mitigate than the physical risks for the airport industry. Despite this, Morningstar DBRS believes that in the near-to-medium term, the credit risk profiles for airport operators in its rated portfolio will not be materially affected by the effects of climate change.

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