Financially stable airlines hold key to steady revenue streams for airports

Representative image

One fine day in May, SpiceJet flights were delayed in the morning. The reason? The airline hadn’t made some payments and Air Traffic Control did not grant clearance to its flights.

The airline quickly came up with information on how an attempt to compromise its systems led to a delay in payments. The flights departed after the payments were handled manually.

This hand-to-mouth existence for SpiceJet has been around for a while and the airline has been placed on a cash-and-carry mode for a long time. In aviation, the term cash-and-carry is maligned but has been in use frequently over the past decade or so.

An airline put on cash-and-carry has to pay airport and other vendor charges on a daily basis. This happens when vendors and service providers fear a default on payments and consider the airline’s financial position “precarious”.

Airport operators have been left hanging with large outstanding dues and even when airlines leave their aircraft at airports before winding up, they are of little value to the airport operators when it comes to recovering the dues.

The aircraft attract little value when auctioned and claims on them are made by just about everyone – starting with lessors and the tax authorities.

In fact, the airports run up bills worth hundreds of crores of rupees without anyone to pay for them just maintaining the planes on the ground. The planes also occupy valuable bays and apron space that could have otherwise been given to rivals to operate more flights.

One can still see relics of NEPC Airlines and Damania Airways (from the 1990s) to Kingfisher Airlines (2003-12) at major airports across the country. Sometimes, the airports not only lose the money but are also asked to ensure safekeeping of the grounded aircraft, adding to their burden.

Too late

Airlines do not become financially weak overnight. A long financial slide was seen in the cases of both Kingfisher Airlines and Jet Airways. There was enough time for the ecosystem to catch the slide and act on it.

But for airports, it is too late and sometimes counterproductive. Too late because demanding money when an airline has none leads to very little and is counterproductive because if the airport decides to stop the airline’s flights, the carrier’s last source of revenue also comes to an end.

Jet Airways was dominant at quite a few airports in India when its financial troubles started. It was the capacity leader at Mumbai airport, with a high impact there, both financially and in terms of connectivity.

In the current scenario, market leader IndiGo has not found itself in this position in the past and has cash reserves. The airline, even at the peak of the pandemic, ensured that it paid lessors and vendors. Likewise, the Tata Group has a legacy to maintain and is not known to default across its multiple businesses.

As the pandemic struck, airlines started furloughing their employees. The Tata Group had two airlines in joint ventures with partners in Malaysia and Singapore. AirAsia Bhd, the partner for AirAsia India, went on a layoff spree in its home market, but employees in India were protected from job losses. The group has been at the forefront of restoring salaries or part of them.

How the airports are stacked

Nine of India’s top 20 airports by capacity are private, while 11 are owned or operated by the Airports Authority of India, including the civil enclaves at defence airports in Pune, Srinagar, Goa and Vizag.

At airports where the combination of IndiGo, Alliance Air and airlines owned by the Tata Group have a larger share of operations, it is good for the operators.

All flights at Indore airport are operated by this combination, which has an over 90 percent share at Vizag and Varanasi airports as well.

The highest reliance on non-IndiGo and non-Tata Group-promoted airlines is at Patna, at 49 percent.

This trend is especially good for private airports, and in the future, one would not be surprised if slot allotment is linked to timely payments by airlines – formally or informally.

Tail Note

The next phase of airport privatisation could be kicked off any time now. Last time, the Adani Group bagged six airports. The bids, though, seemed atrociously high.

A steady revenue stream is important for airports. Attracting financially stable airlines can mean better revenue prospects for airports.

Will this dictate how bids will be made for airports? It probably will!