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Synopsis

In this report, CareEdge Ratings has assessed the state of air passenger traffic recovery, near term outlook of the sector and the financial performance of major Indian public-private partnership (PPP) Airport players. This article is the sequel to the CareEdge Ratings article titled: Airports - Enroute to stability after heavy turbulence (Published on April 20, 2022), wherein CareEdge Ratings revised the outlook for airport infrastructure to STABLE from NEGATIVE.

• CareEdge Ratings expects air passenger traffic to reach 93% of pre-pandemic levels in FY23 and surpass the pre-covid level in FY24 with 1.12 times pre-covid air passenger traffic on account of full recovery in international traffic. The recurrence of Covid-19 and its impact on air travel shall be key monitorable.

• India’s GDP growth and its multiplier effect on air passenger traffic growth with favourable demographics of a rising working population augur well for Indian airport operators.

• Improving the regulatory environment with the timely issuance of tariff orders will pave the way for timely revenue visibility for Indian airport operators.

• Leverage indicators are likely to remain at elevated levels for FY23. However, air passenger traffic growth beyond pre-Covid levels and the issuance of new tariff orders in some of the PPP airports are likely to strengthen leverage indicators from FY24.

Passenger Traffic to Grow 1.12 x of Pre-Covid Levels in FY24

Source: Airport Authority of India and CareEdge Ratings

The resumption of international traffic w.e.f March 25, 2022, increased vaccination pace, and receding impact of Covid-19 led to a steady recovery for airport passenger traffic. After the third wave in Q4FY22, passenger traffic touched 90% of pre-Covid levels in Q1FY23 compared to Q1FY20. After witnessing a dip in passenger traffic recovery to 86% of Pre-Covid levels in Q2FY23, it rebounded again in October 2022 to 93% of the pre-Covid level in October 2019. CareEdge Ratings expects passenger traffic to reach 93% of pre-Covid levels in FY23 with the onset of the festive season and growth in international traffic, marking V-shape recovery for the sector, indicating growth by 70% in FY23 on a YoY basis. CareEdge Ratings expects a full recovery in international traffic by early FY24 combined with steady domestic traffic growth. Thus, on an overall basis passenger traffic is expected to surpass the pre-Covid level by 1.12 times in FY24.

Key Growth Propellers in Passenger Traffic

There is a multiplier effect between passenger growth rates and GDP growth rates. During FY16-FY20, the Compounded Annual Growth Rate (CAGR) of passenger traffic was 1.80 times GDP CAGR. Over FY23-FY25, CareEdge Ratings expects the air traffic growth rate to be at 2.25 times that of the GDP growth rate, primarily due to the low base in FY22. Moreover, India has favourable demographics with the largest working population, with 67% of the total population in the working age group of 15-64 years in 2020. The rising working population and widening middle-class demography will propel passenger growth. Declining the fare gap between rail and air, new fleet additions by major airlines shall also drive passenger growth. Thrust on green field and brown field expansion of airports is also a significant driver for passenger traffic growth.

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