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August 10, 2017

Sector Report: Airport Infrastructure

This report is available to users in India for ₹40,000 + applicable taxes


Growth in air passenger traffic to moderate in 2017-18


CRISIL Research expects air passenger traffic growth to moderate to 15-17% on-year in 2017-18, compared with an estimated 18% growth in2016-17. In 2017-18, the air fares are expected to stay flattish at 0-2% compared to an estimated 6-7% decline in 2016-17. Besides, the traffic growthwill be driven by economic growth and improved connectivity to tier 2 and tier 3 cities. During 2016-17, airlines offered competitive fares vis-avisrailways, especially during the second and fourth quarters, to attract passengers. We expect the low fares in select quarters will continue to supportdomestic passenger traffic growth in 2017-18.


Overall passenger traffic at airports is projected to grow at a compound annual growth rate (CAGR) of about 12-14% during 2016-17 to 2021-22 --domestic traffic 13-15% and international traffic 9-10%. While domestic share in total passenger traffic is pegged to increase, it is dependent on growthof domestic GDP and airport infrastructure (through greenfield and brownfield projects) and revival in global economy.


Only 14% of regional connectivity scheme airports are ready for take-off


From the data compiled by CRISIL Research, barely 55-60 regional connectivity scheme (RCS) airports/ airstrips or 14% of the total 414 airports,including 12 underserved and the remaining unserved have the requisite infrastructure for small aircraft. Operation of a small aircraft (ATR 42) typicallyrequires a runway length of 1,500-1,600 metres.


MoUs signed for RCS


The Government of India announced a regional connectivity scheme (RCS) aimed at improving regional connectivity across the country by reviving 414unserved/underserved airports. However, its implementation depends on states' acceptance to reduce value added tax on aviation turbine fuel to 1%,and contribution of 20% towards viability gap fund (VGF). So far, 11 states, namely, Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Jharkhand,Madhya Pradesh, Maharashtra, Mizoram, Puducherry, Uttarakhand, and West Bengal, have signed memoranda of understanding (MOUs) with theAirports Authority of India (AAI) and union Ministry of Civil Aviation to develop airports as part of the scheme. Apart from these 11 states, 7 states,namely, Arunachal Pradesh, Haryana, Himachal Pradesh, Jammu and Kashmir, Meghalaya, Orissa, and Telangana have given their consent forimplementation of the scheme.


The scheme entails two rounds of bidding. In the first round, an airline proposes a route under the given criteria, along with the VGF requirement. Postselection,the route is made public, counter proposals for VGF for the proposed route are invited, and the airline with the lowest bid declared winner.