Operating profits of four busiest airports in the country likely to dip 90%: Crisil

Hit by the steep drop in the passenger movement, operating profits of the country’s busiest airports — Delhi, Mumbai, Hyderabad and Bengaluru — are expected to plunge 90 per cent, according to credit rating agency, Crisil. The only way to boost profitability in the economically ailing Indian airports is to increase tariffs. It estimates that the actual tariff hike on average will be around 115 per cent of current levels.

Crisil has recommended that if airports were to make profits for the next fiscal, a likely increase in tariff at some of the country's busiest private airports was needed. This, according to its analysts, could boost their operating profit to about 65 per cent of pre-pandemic levels.

Dip in passenger traffic

According to rating agency ICRA said in a note last week, the domestic airport sector is expected to incur a net loss of ₹5,400 crore, and cash loss of ₹3,500 crore during FY21. These results are a direct impact by a 66 per cent year-on-year slip in passenger traffic amid Covid-19 induced travel restrictions.

Three of these four airports are likely to see their aeronautical tariffs which are levied on the passenger traffic, cargo, airport landing & parking fee, etc. more than double on an aggregated average, from current levels.

“This is because the airport regulations allow the airports to get a fixed regulated return on the capacity addition being done in the control period, charged through tariffs. Further, regulations also allow a true-up in the tariff to compensate for the loss in aeronautical revenue due to lower-than-expected traffic over the previous control period,” Crisil said in a note.

About one-third of the anticipated hike in tariffs is to compensate for the loss in aeronautical revenue due to lower than-expected traffic over the last and current fiscals. Manish Gupta, Senior Director, Crisil Ratings, “The tariff hikes will help aeronautical revenue bounceback next fiscal to 1.3 times of fiscal 2020. However, these form only half of the overall revenue of these airports.

The remaining two-thirds is to provide a fixed return on the capacity addition done in the current tariff control period of 5 years. “The other half – non-aeronautical revenue – remains sluggish due to slow pick-up in passenger footfalls despite some relaxation in people movement, and low propensity of passengers to spend in the airport ecosystem at present. Consequently, overall revenue next fiscal will be lower than in fiscal 2020,” he explained.

Airports are regulated monopolies and will therefore see traffic recover eventually, but the pace of recovery remains uncertain and dependent upon the Covid-19 wave and recovery in the travel preferences of people, especially for cross-border journeys.

Traffic recovery

Ankit Hakhu, Director, Crisil Ratings, “Our estimates assume traffic may fully recover only by fiscal 2023, actual tariff hike on average be around 115 per cent of current levels and provided during the next 3-4 months for airports where filings have been made. A significant delay or lower-than-expected tariff hikes would weaken debt-servicing metrics and credit profiles.”

Most airports have built cash buffers through upfront borrowing or push down of debt maturities via refinancing, or surplus build-up from excesses from previous tariff control periods. We estimate that such liquidity buffers, including working capital lines, would be adequate for up to four quarters4 of debt servicing.

This, along-with airports’ regulated business model and operating exclusivity, support ratings in adequate and high safety categories for most airports. That said, the final decision by regulators on the quantum of hikes and timeliness remains a critical monitorable.

COMMENT NOW