With the dip in traffic growth largely behind, Crisil expects congestion at the top four airports – Delhi, Mumbai, Bangalore and Hyderabad, which handle more than half of air passenger traffic in India – to continue over the medium term. These airports on an aggregate presently operate at over 130% and with healthy traffic growth ahead this operating rate is expected to rise further in next 12 months. Operationalising of capacities in the following two fiscals would bring down utilisation levels albeit still high at over 90% by fiscal 2023.

That’s despite an unprecedented Rs.38,000 crore capex being undertaken by operators over five fiscals 2020 - 2024. The capex, the highest to be incurred in any continuous five-year period, is largely debt-funded.

Despite the unprecedented capex, ratings are likely to be stable given the strong cash flows expected due to healthy traffic growth, low project risks associated with the capex and improving regulatory environment.

Says Manish Gupta, Senior Director, Crisil Ratings, “Capacity at these four airports will increase a cumulative 65% to 228 million annually (from 138 million now) by fiscal 2023. However, traffic is expected to grow strong at up to 10% per annum over the same period. Because the additional capacities will become operational in phases only around fiscal 2023, high passenger growth will add to congestion till then.”

High utilisation will ride on pent-up demand (accumulated in 2019 as traffic was impacted with the grounding of Jet Airways) and one-off issues with new aircraft of certain airlines. Further impetus will also come from improving connectivity to lower-tier cities and reducing fare difference between air and rail.

Increasing footfalls at airports provide a leg-up to non-aero streams such as advertising, rentals, food and beverage and parking, which comprise around half of the revenue of airports already. These are expected to grow strongly at over 10-12%, also supported by increased monetisation avenues coming along with current capex.

The other half of revenue (aero revenue) is an entitlement approved by the regulator, providing a pre-determined, fixed return over the asset base and a pass-through of costs. Given a high asset base expected to be created by the capex, aero revenue is also expected to get a bump up during fiscals 2022-24, when a new tariff order for airports is likely. Overall aggregate cash flows are likely to double by fiscal 2024 and provide a healthy cushion against servicing of debt contracted for capex.

Says Ankit Hakhu, Director, Crisil Ratings, “These airports operate on a hybrid till model¹, where non-aero revenue stream partially subsidise airport user fee. Hence rising traffic and increasing monetisation of non-aero assets will pave the way for a more balanced regulatory regime. That, along with largely pre-approved capex, partly mitigates risks related to execution delays and material deviation in the expected rise in aero revenue.” This confidence is further supported by only minor differences seen in recognition of actual capex incurred by regulator in last 5 years.

Rating are also expected to remain stable as risks of cost and time overruns – and therefore, of project cost inflation – are expected to be relatively low as nearly 75% of the capex is brownfield, where the risk of not getting timely clearances is lower. As such, airport-related capex is less complex compared with other infrastructure classes. All said, progress of projects and timely tariff orders are the key monitorables in the road ahead.

¹ ‘Hybrid till' model is one of the three tariff models to arrive on aeronautical charges for the airports. The other being ‘Single till’ and ‘Dual till’. While Single till model uses all the non-aero revenues to subsidise the aeronautical charges, hybrid till model (in India) uses only 30%. Dual till model does not factor any subsidy from non aero.