Air travel is expected to a downturn in 2022 and completely recover just by the fourth quarter due to the debilitating results of the next Covid-19 wave in India. However, the credit quality of airport operators will continue to be encouraged by powerful business models and healthful liquidity covers amid reduced carb servicing demands this financial.

This travel relies on investigating the best four Indian airports viz. Delhi, Mumbai, Bengaluru, and Hyderabad accounted for 90% of air passenger traffic managed by private airports in India and 50% of air traffic last year.

A raging second tide of Covid-19 has led to localized lockdowns, night curfews, and other restrictions on the movement of individuals. Thus, passenger traffic in airports has nosedived, together with typical daily domestic passenger traffic halving at May 2021 in February 2021, or into a mere 10% of pre-pandemic levels as found in May 2019.

Says Manish Gupta, Senior Director, CRISIL Ratings, the second wave will push back the resurrection of business travel and pickup of global traffic, which accounts for more than half of total traffic. Given this background, we now expect traffic volumes that this financial to be 60% of financial 2020 amounts and retrieval to pre-pandemic levels occurring just by the fourth quarter of financial 2023.

Nevertheless, traffic volumes are anticipated to rally once the current affliction curve begins to flatten. It saw the ramp-up in national traffic following the recommencement of airport operations in May 2020, using total passenger traffic reaching 60% of financial 2020 amounts by February 2021, i.e., over nine months of their initial national travel advisory. And also, a much quicker recovery is anticipated this time, dependent on the continuing vaccination drive, push against the government to restrict the economic effect and recovery trajectory found in countries that have emerged out of another wave.

Retrieval signs from the USA and Europe are optimistic and exhibit quicker recovery post-second tide. For example, in the USA, after the disease curve began to flatten from February 2021 onwards, passenger traffic volumes rose fast from less than 40% in February 2021 to 70% in May 2021, when compared with individual pre-pandemic levels.

Nevertheless, the normalization in India is anticipated exclusively by the fourth quarter of financial 2023. It will cause a reduction of Rs 900 crores earnings from sooner pre-second wave anticipation of INR 7500 crores of revenues in financial 2022. Even then, the charge profiles of those CRISIL-rated operators are most likely to be unaffected.

As per the CRISIL Ratings Director, Ankit Hakhu, the drop in revenues won’t necessarily affect the banking sector due to the strong business and healthy liquidity covers. However, it means the unutilized working capital will be at over 16 months of debt service in 2022.

Further, these airports are in metropolitan cities, which will see a fast return of visitors and earnings once the total market stabilizes.
The airport regulations ensure a fixed yield on the aeronautical capital expenditure incurred (to appeal to passenger traffic, freight, airport landing & parking infra, etc.). And, any reduction in earnings revenue (50% of total earnings ) because of lower-than-expected traffic in the current five-year interval is paid in the following five years interval.

Although, the rest half of the earnings from non-aeronautical activities3 is expected to remain slow since the revenue stream is dependent on passenger footfall and their purchase/consumption propensity. But since these airports have limited competition within their geographic area, a solid pickup is probably once the visitor’s return.

Further, these airports have a very long staying concession lifetime (over 40 years) than their current debt tenors. This ‘tail’ provides flexibility to drive payments further back if needed.

Nevertheless, the debt servicing responsibilities of airports will double next financial onwards as the servicing of debt required for continuing capacity expansion will start. Thus, timely traffic and earnings pickup for the upkeep of debt service covers might need to be tracked.