Indian airports lag significantly on nonaeronautical yields: ICRA
Aeronautical, non-aeronautical, and real estate earnings comprise the majority of an Indian airport operator's revenue streams. Aeronautical and non-aeronautical revenue make up the majority of revenues, with real estate revenue accounting for less than 5% of overall revenue for major private airport operators.
On a non-aeronautical revenue basis, the largest private airports in India grew at a CAGR of 12% between FY2017 and FY2020. Additionally, the fall in aeronautical revenue share as a result of tariff reductions has resulted in a shift in the proportion of aeronautical to non-aeronautical traffic at major private airports, from 67:33 in FY2017 to 49:51 in FY2020. The non-aeronautical revenue share climbed to 57 percent in FY2021 as a result of the pandemic's increased impact on aeronautical revenues. In comparison, the revenue mix at Airport Authority of India (AAI)-operated airports is dominated by aeronautical revenues, which account for 78 percent of total revenue, as the focus is less on non-aero yield due to low passenger throughput at the majority of tier II and tier III airports, lower international traffic, and relatively low traveller spending.
Mr. Rajeshwar Burla, Vice President & Group Head, Corporate Ratings, ICRA, adds, "In comparison to other large private airports worldwide, the nonaeronautical yield per passenger at major private airports is low." The average non-aero yield per passenger for large private airports in India was US$ 3.8 (even lower at US$ 2.9 if AAI-operated airports are included) between FY2018 and FY2020 (FY2021 is excluded due to Covid impact), compared to a global average of US$ 5.7 to 16.4 for big airports. Given changing consumer purchasing habits, Indian airports still have a long way to go. Aeronautical revenues are controlled by law, with returns capped; hence, airport operators must enhance their non-aero yields to maximise their return on capital used."
The impact of Covid-19 on passenger traffic has had a significant influence on the revenues of non-aero concessionaires, which has impacted the non-aero revenues of airport operators. The airport operators temporarily relaxed lease terms for the majority of non-aeronautical concessionaires by shifting from a minimum monthly or annual guarantee to a pure revenue share arrangement. While airline and other business space rentals have been mostly unaffected, duty-free, retail, and advertising income have been significantly impacted in FY2021. Certain concessions granted in FY2021 are projected to be extended in FY2022, and as traffic and non-aeronautical revenues increase, airport operators are expected to revert to their original lease terms.
"The airport infrastructure sector was one of the sectors hardest damaged by the covid-19 outbreak. The second pandemic wave has halted the steady ramp-up of passenger traffic in Q1 FY2022, resulting in a delayed recovery. The future for airport infrastructure remains pessimistic. With international commercial operations, which have been prohibited since March 2020, set to resume in phases beginning October 15, 2021, operators are likely to benefit from higher aero and non-aero yields associated with international traffic. ICRA anticipates domestic air traffic to reach pre-Covid levels by FY2023 and international air travel to reach pre-Covid levels by FY2024." Mr. Burla continued.