The outlook for airport finance: How forecasting techniques can adapt to reflect changeable market conditions

Abstract

The world remains in a phase of prolonged uncertainty, which causes particular problems for airport managers, investors and lenders as they look to develop business plans and models that are robust and credible. The often long lead times to plan and develop infrastructure capacity and the increasing diversity of airline service in the market demand a clear view of the future market and traffic. Underlying aviation activity and its growth over time, in turn, will affect virtually every part of an airport business plan. There remain many different approaches to forecasting and it may be difficult to demonstrate that any one is more valid than others at predicting the future; however, lessons from the past few years suggest that there is an increasing need both to consider risk explicitly and to understand the key drivers that will influence demand. While it is ultimately for the airport manager, investor or lender to judge the level of risk they wish to assume in business planning, enhancing the transparency of the forecasting process can allow for a more considered view of the implications. This in turn provides the basis for more informed judgment in decision making, balancing out the risks and opportunities to develop business plans that can better adapt to changing market conditions. This paper looks to outline some of the current global market trends and considers ways in which demand forecasting techniques can respond to enhance the overall business planning process. In looking at this challenge, three specific issues can be identified which need to be addressed: (1) What is the current outlook in demand for air travel? (2) What are the key issues which forecasting needs to consider? (3) How do we best manage the risks inherent in any future forecast?