After reporting operating loss last year, the airport infrastructure sector in the country is expected to turn around this year with an operating profit of Rs 3,200 crore, driven by a likely 82-84 percent growth year-on-year in air passenger traffic during the period, according to a report by rating agency ICRA.
The agency also said that due to the COVID-19 pandemic, the ongoing capacity expansion plans at the major airports are expected to be delayed by 12-18 months.
The significant ramp-up in vaccination, decline in COVID-19 cases and a pick-up in revenge leisure travel are supporting the growth in the domestic passenger traffic, it stated in a statement.
The airport infrastructure industry was one of the worst-hit sectors due to the COVID-19 pandemic, said Rajeshwar Burla, group head (corporate ratings) of ICRA.
He added, "The sector's operating income and operating profits are estimated at Rs 14,000 crore and Rs 3,250 crore (operating loss of Rs 1,450 crore in FY2021), respectively, in FY2022."
However, the outlook on the airport infrastructure continues to remain negative, he said.
With the improvement in the operating margins and the consequent cash flows in FY2022, the interest coverage and debt service coverage ratio (DSCR) are expected to improve to 1.8x and 1.2x, respectively, according to Burla.
The strong on the balance sheet liquidity is expected to support the sector in the near term, he noted.
According to ICRA, domestic passenger traffic has increased consecutively for five months after the slowdown witnessed in April and May this year due to the second wave of the pandemic.
The easing of COVID-19 restrictions by state governments, dip in new coronavirus infections, healthy pace of vaccination and a pick-up in leisure travel has resulted in a sequential domestic passenger traffic growth during the June-October period, with the same reaching 17.3 million in October 2021 (the highest since the start of the pandemic in March 2020), it said.
This is further supported by the recent decision of the civil aviation ministry allowing 100 percent domestic capacity of pre-COVID-19 levels with effect from October 18, it added.
ICRA said it expects domestic air travel to recover back to pre-COVID-19 levels by FY2023 and the international sector by FY2024.
"As per ICRA's base case scenario, the passenger traffic growth is now estimated at 82-84 percent y-o-y in FY2022, against the earlier projection of 71-73 percent y-o-y. This is factoring in the assumption that the impact of the third wave (if any) to be low due to mass vaccination," Burla said.
In the recently released tariff orders for some of the major private airports, the Airports Economic Regulatory Authority (AERA) has acknowledged the adverse impact of the COVID-19 pandemic on the airport operators, according to ICRA.
The true-up of traffic for FY2021 has been considered in the current control period. Further, considering the impact of a second wave of the pandemic on air traffic in Q1 FY2022, the regulator has decided not to increase the tariff for FY2022, as the sector is in the recovery phase and an increase in tariffs had made with effect from April 1, 2022, ICRA said.
However, given the low traffic on one side and ongoing/upcoming capacity expansion plans at major private airports, on the other side, the decision to continue with the same tariff for FY2022 is expected to impact the airport operators temporarily.
ICRA notes that due to the COVID-19 pandemic, the ongoing capacity expansion plans at the major airports are expected to be delayed by 12-18 months. The completion cost is expected to increase due to an increase in interest during construction (IDC) as some of the airports have funded capex with bullet bonds that have been drawn down at once, it said.
The ramp-up in domestic passenger traffic has been steady since the second wave of the pandemic. However, the ban on international commercial operations since March 2020 and the rise in coronavirus infections again in Europe and other international regions is expected to delay the recovery of international traffic, it said.
The rating agency added that the same is expected to recover back to pre-COVID-19 levels by 2023-24.
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