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Morningstar | A Tale of Two Airports: BCIA to Face Major Traffic Diversion Over Next Few Years

Beijing Capital International Airport is the world's second-largest airport with passenger volume of over 100 million in 2018. Despite the former monopolylike position in China's capital city, the firm’s levels of profitability were historically constrained by massive fixed-asset investment and tight government regulations. With the opening of a second airport soon, BCIA will be put under a tremendous amount of pressure to expand its nonaeronautical business. The city of Beijing is on track to unveil its second airport in late 2019. While this is great for travelers, the same can hardly be said about shareholders of BCIA. The new Beijing Daxing International Airport is projected to have four runways with an estimated passenger handling capacity of 72 million. Even though BCIA is currently running over capacity, a new airport of this size within 50 kilometers (31 miles) of the city center will cannibalize traffic going in and out of BCIA. Given that the pricing levels of BCIA's aeronautical business are highly regulated, drivers behind revenue lie ultimately in the growth of passengers and flights. We think BCIA’s traffic will be affected by the government’s plan of expediting traffic ramp-up at the new airport and will experience near-term declines. In the longer term, the firm’s traffic growth will most likely remain subdued as future demand will also be split with the new airport. While growing at a faster rate, nonaeronautical revenue (retail, advertising, car park, and so on) are more susceptible to macroeconomic cyclicality, and growth can be relatively volatile. We expect BCIA’s nonaeronautical business to experience moderate losses in revenue during the transition period, as the success of these businesses depends on the number of passengers passing through terminals. However, we think the adverse effects resulting from a drop in traffic will be partially offset by the rising volume of high-spending international passengers, a new retail profit-sharing scheme, and liberalizing pricing reform for other services provided by the airport.