It was just over a year ago that Bradley International Airport officials began construction on a $210-million ground transportation center that will eventually house all rental car companies at the airport — eliminating the need for shuttle service to off-site locations.
During the July 2019 groundbreaking ceremony, Gov. Ned Lamont gushed at Bradley’s “rapidly rising popularity and ridership,” and the importance of the new transportation center as a convenience for travelers.
“More and more people throughout New England are recognizing the multiple benefits this airport provides,” he said at the time.
Oh, how the world has changed since then. As a result of COVID-19, Bradley Airport’s passenger traffic is down about 60% from last year, travel to international and domestic destinations is restricted or limited, and car rental companies dependent on airline passengers are hurting, with industry behemoth Hertz filing for bankruptcy in May.
Normally, such economic conditions might put a major development like the ground transportation center on hold. That’s not happening.
Instead, the Connecticut Airport Authority (CAA) is moving ahead with the project — scheduled to be completed in 2022 — because it has no choice. The lion’s share of the approximately $151 million to fund the ground transportation facility is already bonded out, and the airport’s debt repayment plan hinges on fees it will charge rental car companies.
The situation has created an uneasy dynamic, with a black swan possibility of all eight rental car companies operating at Bradley eventually leaving the airport amid the toughest economic conditions the airline industry has ever faced.
That’s extremely unlikely to happen, according to CAA Executive Director Kevin Dillon, but the current conditions are a major challenge. However, he and other industry experts say airlines and rental car companies will eventually see a return of customer traffic, averting a scenario that shatters the ground transportation center’s intended funding mechanism.
In the meantime, the CAA, which oversees Bradley, is working with rental car companies to lower fees they pay to the airport.
“When we do get back to those pre-pandemic levels [of business], and then resume our growth beyond pre-pandemic levels, this facility is going to be very, very important for our future,” Dillon said. “It’s still a vital project.”
Less traffic, fewer rentals
The years leading up to the COVID-19 pandemic were good ones for Bradley, with the airport growing passenger traffic for seven consecutive years before March’s air-travel armageddon. Amid consistent growth at Connecticut’s largest airport, the CAA embarked on the ground transportation project to eliminate the need for shuttle service to car rental locations, and add parking spaces. The facility will also be accessible by bus, and could eventually add a rail connection, Dillon said.
The CAA last year issued two separate bonds to fund construction of the facility — one for $35.4 million that matures in 2049 and another for $115.7 million scheduled to be fully paid off by 2045.
CAA is currently only required to make interest payments on the debt service. It’s total annual debt payments — including principal — reach a peak of $9.6 million starting in 2023. That will be paid off through customer facility charges CAA levies on car rental companies, Dillon said. Bradley currently charges $8.40 per car rental per day (so if 10 people rented cars for two days, the fees would add up to $168).
In fiscal 2019, car rental companies at Bradley Airport — including Avis, Budget, Hertz, Enterprise, Alamo and others — recorded 1.5 million rental car transactions, which generated $11.6 million in customer facility charge revenue for the CAA.
“This financial plan was put together on the basis that customer facility charges would satisfy the debt service,” said Dillon.
Bradley’s car rental fee revenue has more than doubled since 2015, but will take a major hit this year with the precipitous decline in passenger traffic.
Through July, Bradley recorded 1.6 million passenger rides so far in 2020 (including deplanements and enplanements), down nearly 60% from a year ago.
At the same time, car rental company revenues have dropped by about half since March, said Chris Brown, executive editor of California-based trade publication Auto Rental News.
“Revenues and bookings had dropped off a cliff,” Brown said. “It really tipped Hertz into bankruptcy, and it has caused fleet sell-offs.”
That dynamic led S&P Global Ratings in late September to downgrade the credit ratings (from A- to BBB) of Bradley Airport’s ground transportation center bonds.
“ … Rental car activity will be severely or materially depressed and unpredictable for 2020 and beyond as a result of the COVID-19 pandemic and associated effects that we believe are outside of management’s control,” S&P Global Ratings credit analyst Ken Biddison said.
In May, Fitch Ratings lowered its outlook for Bradley’s ground transportation project to “negative,” while still affirming its BBB rating.
However, Jeffrey Lack, co-lead of Fitch’s airport sector, said the fact that the project is still under construction with debt payments not peaking for a few years, puts Bradley in a better position than if the project was already complete.
“[The project] is benefiting from the fact that it’s in construction right now,” Lack said.
Most of the 12 car rental companies Fitch rates are currently on a negative outlook, Lack said, due to the impacts from the pandemic. Airport rental car companies generally pay fees to their hosts based on the revenue they generate, but contracts typically stipulate a minimum guaranteed payment, Lack said.
“When you have a drop in passenger traffic as significant as we’re experiencing, it impacts you across the board,” Dillon said. “It’s really our passenger volume that drives all of these different revenue sources.”
Long term, Lack predicts car rental companies will pull through, noting that many are run by large corporations that have substantial reserves to get them through prolonged downturns.
Dillon said he isn’t worried about a mass rental-car company exit because the pandemic won’t last forever.
“There will always be a certain amount of rental car business at the airport no matter what happens,” Dillon said.
