Second COVID wave to push recovery of air traffic to end of fiscal 23
Air traffic is expected to recession in financial 22 and completely recover just by fourth quarter of following fiscal1, 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 relies on an investigation of the best four personal airports - Delhi, Mumbai, Bengaluru and Hyderabad -- that accounted for ~90% of air passenger traffic managed by personal airports in India and also ~50% of all air traffic last financial.
A raging second tide has led to localized lockdowns, night curfews and other restrictions on 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 found in May 2019.
Says Manish Gupta, Senior Director, CRISIL Ratings, "Second wave will push back 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 fourth quarter of financial 2023."
Nevertheless, traffic volumes are anticipated to rally once the current affliction curve begins to flatten. Ramp-up in national traffic was seen following the recommencement of airport operations in May 2020, using complete passenger traffic reaching ~60% of financial 2020 amounts by February 2021, i.e. over 9 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 government to restrict the financial effect and recovery trajectory found in countries which have emerged out of another wave.
Actually, retrieval signs from USA and Europe are optimistic and exhibit quicker recovery post second tide. For example, in 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 fourth quarter of financial 2023. This will cause reduction of Rs 900 crore earnings from sooner pre-second wave anticipation of Rs ~7500 crores of earnings in financial 2022. Even then the charge profiles of those CRISIL-rated operators are most likely to be unaffected.
Says Ankit Hakhu, Director, CRISIL Ratings, "A drop in earnings won't affect the bank profiles of airports due to their strong business units and healthful liquidity covers - money and un-utilized working capital lines will be at over 16 months2 of debt servicing requirements in financial 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 current five year interval is paid in the following five years interval.
Although, the rest of the half of 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 pick-up is probably once the visitors comes back.
Further, these airports have a very long staying concession lifetime (of over 40 years) compared with their current debt tenors. This 'tail' provides flexibility to further drive payments back, if needed.
Nevertheless, 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 pick-up for upkeep of debt service covers might need to be tracked.