Key Takeaways
- Although we expect U.S. air travel, as measured by passengers, will return to pre-pandemic levels in 2023, evolving remote or hybrid work practices and other factors will continue to drag on the recovery in public transit ridership compared with other U.S. not-for-profit transportation infrastructure asset classes.
- Our updated activity estimates reflect the effects of expected recessionary pressures in 2023.
- Our baseline activity estimates show public transit recapturing about 70% of pre-pandemic activity by the end of 2023 and only about 85% by the end of 2026; and U.S. systemwide enplanements returning to near pre-pandemic levels in 2023.
- Our downside activity estimates show public transit ridership returning to only 80% of pre-pandemic levels by the end of 2026, and U.S. systemwide enplanements still returning to near pre-pandemic levels in 2023.
To benchmark and evaluate management-provided forecasts against its criteria and financial metrics, S&P Global Ratings has updated its activity estimates for the U.S. not-for-profit transportation infrastructure subsectors. We use our activity recovery curves to help evaluate cash flow and financial forecasts of the transportation issuers we rate. These estimates serve as a benchmark to evaluate positive or negative effects when an individual issuer's operational performance falls outside the ranges we are estimating. We have examined industry operating trends and our most current economic outlook to gauge the evolving effects of the COVID-19 pandemic and associated impacts on transportation demand. For S&P Global Economics' current baseline view, see "Economic Outlook U.S. Q1 2023: Tipping Toward Recession," published Nov. 28, 2022, on RatingsDirect.
Transit And Parking Face Longer And Slower Recoveries
We estimate the pace of recovery for transit, parking, and airports to or near pre-pandemic levels will vary, with air travel demand substantially recovered and transit and parking experiencing more protracted recoveries. Although the combination of recessionary pressures expected in 2023 and coronavirus variants will create some headwinds for transportation, we believe pent-up demand and the desire to return to pre-pandemic mobility will continue to propel the recovery assumed in our baseline estimates. Our downside estimates assume a slower recovery due to the various factors mentioned above creating a greater drag on demand.
We base our estimates on factors influencing future activity, including industry trends, discussions with management teams, and our economists' view of macroeconomic conditions (chart 1). Overall, new factors have emerged since we last updated our activity estimates ("Updated U.S. Transportation Infrastructure Activity Estimates Show Air Travel Normalizing And It’s A Long Road Back For Transit Operators," July 27, 2022) that we believe will influence demand in the transportation sector.
Our updated baseline estimates for public mass transit, parking, and airports are summarized below:
- The recovery in public mass transit will continue to materially lag all other U.S. transportation infrastructure asset classes due to a slow or partial return to office commuting patterns. Our revised baseline activity estimate for transit shows a faster recovery (80% by 2025 instead of 75%; and 85% by 2026) compared with our July 2022 estimates. Since ridership nationwide was experiencing year-over-year declines before the pandemic, we believe it likely will not recover to near pre-pandemic levels for a long time, relying more on slowly developing demographic trends rather than public transit seeing a sudden renaissance.
- Parking operators will experience recoveries generally much better than those of transit providers, but not as strong as those of airports. Our revised baseline activity estimates for parking are unchanged at 95% by 2025 compared with our previous estimates. However, this update includes 2026, when we estimate parking demand will return to near pre-pandemic levels.
- Finally, for most U.S. airports, we still expect air travel demand will return to near pre-pandemic levels in 2023, with airports serving warm-weather and leisure domestic destinations continuing to experience strong recoveries, and those serving international markets rebounding more slowly with potentially some slower growth based on coronavirus variant spikes, but no change from our previous estimates.
Continued vaccine progress and the reaction of governments, businesses, and the traveling public to an evolving health and safety landscape and recessionary pressures will influence our view for 2023 and beyond regarding how activity levels might change and the timing of when demand for certain modes of transportation will normalize.
Chart 1
Chart 2 and table 1 show our estimated baseline recovery curves by subsector through 2026, with public transit and parking operators facing the longest recovery compared with other U.S. transportation subsectors. More specifically, our current baseline activity estimates for 2023 show annualized recapture rates of pre-pandemic levels at approximately 70% for public transit; 85% for parking; and 100% for airports, with activity potentially returning to or near pre-pandemic levels in fourth-quarter 2025 for most parking operators and later for public transit (90% in fourth-quarter 2026). The prospect of a continued or permanent shift by some workers to remote or hybrid work arrangements and continued growth in online shopping could, in our opinion, limit the recovery in transit ridership. Although higher gasoline prices in the past may have increased transit ridership, we expect this dynamic will be muted, given the rise in remote work.
Chart 2
Table 1
| S&P Global Ratings' Estimated Baseline Activity Level Recapture Rates Relative To Pre-COVID-19 Levels* | ||||||||
|---|---|---|---|---|---|---|---|---|
| Estimates as of January 2023 | ||||||||
| % | Mass transit | Parking | Airports | |||||
| 2020 | 45 | 70 | 40 | |||||
| 2021 | 50 | 75 | 70 | |||||
| 2022 | 60 | 80 | 95 | |||||
| 2023 | 70 | 85 | 100 | |||||
| 2024 | 75 | 90 | 100 | |||||
| 2025 | 80 | 95 | 100 | |||||
| 2026 | 85 | 100 | 100 | |||||
| *Values represent a composite of assets within the transportation subsector, activity estimates for specific assets could differ based on its value proposition and specific advantages and disadvantages. A value of 100 in the table above denotes a return to levels we expect will be relatively predictable that are near or above pre-pandemic levels. | ||||||||
Chart 3 and table 2 show our estimated downside recovery curves by subsector compared with pre-pandemic levels through 2026.
Chart 3
Table 2
| S&P Global Ratings' Estimated Downside Activity Level Recapture Rates Relative To Pre-COVID-19 Levels* | ||||||||
|---|---|---|---|---|---|---|---|---|
| Estimates as of January 2023 | ||||||||
| % | Mass transit | Parking | Airports | |||||
| 2020 | 45 | 70 | 40 | |||||
| 2021 | 50 | 75 | 70 | |||||
| 2022 | 60 | 80 | 95 | |||||
| 2023 | 65 | 85 | 100 | |||||
| 2024 | 70 | 90 | 100 | |||||
| 2025 | 75 | 90 | 100 | |||||
| 2026 | 80 | 95 | 100 | |||||
| *Values represent a composite of assets within the transportation subsector, activity estimates for specific assets could differ based on its value proposition and specific advantages and disadvantages. A value of 100 in the table above denotes a return to levels we expect will be relatively predictable that are near or above pre-pandemic levels. | ||||||||
In our downside-case scenario, we estimate 2023 annualized recapture rates of pre-pandemic levels at approximately 65% for public transit; 85% for parking; and 100% for airports, with activity potentially returning to or near pre-pandemic levels further out for parking operators (95% in 2026) and transit providers (80% in 2026).
Financial Metrics Will Spur Rating Trends
We believe certain mass transit and parking operators will generally experience a longer financial recovery compared with other transportation infrastructure providers whose finances are not materially influenced by changes in ridership and parking demand, or changes in user behavior compared with pre-pandemic levels. Downgrades are likely for those financially vulnerable transportation issuers experiencing persistently lower activity (that outlasts the availability of federal pandemic operating relief grants, if applicable), absent offsetting management actions to alleviate financial effects, including credible plans to return to structural operating fund balance, particularly for transit providers reliant on revenues that are sensitive to changes in ridership. Alternatively, upgrades to individual transportation bonds that were downgraded due to materially depressed demand that has been slow to rally will depend on our assessment of the staying power of current recovery trends along with issuer forecasts that we consider reasonable and that demonstrate a return to sustainable financial performance metrics comparable with pre-pandemic levels.
Related Research
- U.S. Transportation Infrastructure Port Sector Update And Medians: Ports Are Resilient In Shifting Tides, Dec. 13, 2022
- U.S. Transportation Infrastructure Airport Update And Medians: Sector View Is Now Stable After Historic Disruption, Dec. 8, 2022
- U.S. Transportation Infrastructure Transit Sector Update And Medians: Long-Term Funding Decisions Loom For Many Mass Transit Operators, Sept. 8, 2022
- U.S. Transportation Infrastructure Sector Update And Medians: U.S. Parking Sector View Is Now Stable, May 4, 2022
- U.S. Transportation Infrastructure Sector Update And Medians: Not-For-Profit Toll Roads And Bridges, Sept. 22, 2021
This report does not constitute a rating action.
| Primary Credit Analysts: | Joseph J Pezzimenti, New York + 1 (212) 438 2038; joseph.pezzimenti@spglobal.com |
| Kurt E Forsgren, Boston + 1 (617) 530 8308; kurt.forsgren@spglobal.com | |
| Secondary Contact: | Andrew J Stafford, New York + 212-438-1937; andrew.stafford1@spglobal.com |
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