May 18, 2020 / 02:24 PM / By Fitch Ratings / Header Image Credit: New York Times
China's road traffic levels appear to be recovering from the shock of the coronavirus outbreak, even as air traffic lags and port throughput faces additional looming challenges, says Fitch Ratings. This suggests that toll road operators may outperform within the transport infrastructure space, even though uncertainty remains over how operators will be compensated for the recent holiday in toll road fees.
Transportation infrastructure assets - including toll roads, airports, and ports - have been among the asset classes hit hardest during the coronavirus outbreak, as global travel demand has slumped. China was the first market to be affected by widespread lockdowns during the pandemic, and has now begun the process of gradually restoring normal activity. Its experience may provide insights as to how travel patterns may change in other countries as their lockdowns are eased.
The most striking trend evident from China's transport data has been the strength of the rebound in road traffic. China began to ease its lockdowns in February, yet by March traffic on the national highway network was already 10% higher than in the same month a year earlier. Growth strengthened to 21% year-on-year (yoy) in April. The recovery in road traffic stood in contrast to the continued contraction in retail sales, which fell by 7.5% yoy in April, although fixed-asset investment and industrial production returned to growth within the month.
Much of the strength of the road traffic data over March-April appears to have reflected the impact of the government's move to wave toll fees on the highway network, which encouraged more cost-conscious drivers to use it. As these holidays were withdrawn in May, usage of the national highways fell back below levels seen in 2019.
It remains unclear how toll road operators will be compensated for their revenue losses during the period of the toll holiday. Fitch believes that an extension of concession lifetimes is the most likely outcome. This would boost the long-term value of the road assets, but would provide little relief to the liquidity pressures that toll road operators are facing in the near term.
Road traffic between 6-16 May was down by 3.3% yoy, although road travel at least appears close to a return to pre-coronavirus levels. By contrast, air traffic remains much weaker. Air passenger and cargo traffic in April was down by 70% and 62.4% respectively. The recovery path for air passenger traffic from COVID-19 will be more extended than it was after SARS. Lingering public-health concerns mean that it will take many months for air passenger traffic to exceed its previous peak.
Bulk cargo and container throughput handled by Chinese ports fell by 2.4% and 5% respectively, in March. The decline in port cargo is set to steepen as recessions worsen in the US and Eurozone. There is also a risk that US-China trade tensions could mount, delivering a blow to the recovery prospects for port traffic.