Private airport operators are expected to see their traffic volume recover to the pre-pandemic (fiscal 2020) level this fiscal, spurring a recovery in revenue, supported by an increase in tariffs.

The revenue recovery is crucial to support rising debt-servicing requirements as these airports are at the end of their expansion phase.

Between fiscal 2015 and 2020, air traffic had logged a healthy compound annual growth rate of ~12%, driven by growing penetration of air travel beyond metro cities on tailwind from government schemes such as RCS and UDAN¹, the inherent benefit of time saving in passenger air travel for distances over 500 km, and focus on infrastructure development.

Then the pandemic hit, and air traffic volume nosedived in fiscal 2021. Fiscal 2022 saw only partial recovery (at 55% of fiscal 2020 traffic), given the multiple waves of infection and restrictions on movement of people.

In fiscal 2023, with the pandemic impact seemingly behind us, air traffic volume is expected to increase to the fiscal 2020 level of ~340 million passengers. In the first five months (till August), the volume was ~88% of the corresponding fiscal 2020 level, but is expected to pick up in the remaining months of the year because of improving business travel sentiment, pent-up demand on international segment, and de-bottlenecking of capacity availability on aircraft and international slots.

Says Manish Gupta, Senior Director, CRISIL Ratings, “This fiscal, traffic volume is expected to recover to the pre-pandemic level, implying a robust growth of ~75% over the fiscal 2022 level. The pick-up is expected to be led by domestic traffic as slots and routes on the international front are still opening up. In the first five months of this fiscal, domestic traffic stood at 92% of the corresponding fiscal 2020 mark, while international traffic was at 75%. This cements our confidence for healthy volume growth in the current fiscal and a return to near-double-digit growth next fiscal.”

Further, aeronautical tariffs have increased by ~30% for the top 4 private airports², based on their released tariff orders, which will help aeronautical³ revenue reach 120% in fiscal 2023. Non-aeronautical revenue, on its part, is recovering towards 90% of the quantum in fiscal 2020 for this year. Consequently, revenue of the private airports is expected to be 105% and 130% of fiscal 2020 revenue in fiscals 2023 and 2024, respectively.

The improvement in revenue positions the operators well to withstand the debt-servicing requirements in fiscal 2023 and 2024 — at 25% and 115% higher, respectively, compared with fiscal 2020 — as they had undertaken significant capacity expansion and the moratorium on this capex-related debt is expiring in these two fiscals.

Says Ankit Hakhu, Director, CRISIL Ratings, “We expect the debt-service cushions to be maintained close to long-term averages of around 1.4 times (similar to pre-pandemic levels) and thus do not see any material impact on the credit quality of these operators. Additionally, the airports benefit from a long remaining concession life (of over 35 years) compared with debt tenure (of around 10-18 years), which enables them to refinance debt and manage debt obligations.”

That said, the air traffic recovery estimates and revenue projections remain sensitive to macroeconomic uncertainties and geopolitical developments.

¹ RCS – Regional Connectivity Scheme; UDAN – Ude Desh ka Aam Nagrik. Share of traffic outside top 6 airports increased from ~32% in fiscal 2015 to ~38% in fiscal 2020
² Top 4 airports are Delhi, Mumbai, Bengaluru, and Hyderabad, which accounted for nearly 90% of air passenger traffic handled by private airports in India in fiscal 2022.
³ Aeronautical revenue is from charges such as for passengers flying in and out of the airport and airline parking at the airport. Non-aeronautical revenue is from other activities, such as duty free, advertising, parking, and rentals.