Private airports likely to double capex to ₹42,000 crore: Crisil

Confident of economic rebound and air traffic growth, private airport operators are set to spend around ₹42,000 crore on capacity expansion over the next five years through to fiscal 2026, according to rating agency Crisil.

The projected capital expenditure (capex) is more than double the amount incurred in the previous five fiscals. Strong long-term fundamentals, regulated tariff structure and passing through of capex costs keeps the risks low, Crisil states.

Fall in operating rate

Before the onset of Covid-19 towards the end of fiscal 2020, private airports were bursting at their seams, operating at over 115 per cent of their design capacity (175 million passengers on a design capacity of 150 million). The high operating rate was due to strong annual growth of over 8 per cent in air traffic between fiscals 2016 and 2020. Operating rates took a massive hit in fiscal 2021 as the pandemic and the subsequent economic slowdown led to traffic nose-diving by 65 per cent.

Rapid growth expected

Though the current fiscal also started with the more virulent second wave, economic growth outlook remains strong and GDP is expected to grow at 7.4 per cent compound annual growth rate over next the four years, from fiscal 2022 to fiscal 2025, in real terms.

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Ankit Hakhu, Director, CRISIL Ratings, said “Given that air traffic in India tends to grow faster than GDP growth and Government has been pushing to connect lower tier cities with metros under its regional connectivity scheme (RCS), we expect a robust 8.5 per cent annual air traffic growth at Indian airports till fiscal 2026 (compared to fiscal 2020 levels).”

“This would mean an additional 190 million passengers will fly pan India by fiscal 2026 over the pre-pandemic base of fiscal 2020 of 340 million passengers, taking overall traffic to 530 million passengers by fiscal 2026. Of this, 70 per cent or 375 million passengers are expected to be handled by private airports in fiscal 2026, up from 50 per cent in fiscal 2020, driven largely by overall traffic growth and new airports getting privatised during this period,” he added.

Expanding capacity

This expected demand growth is driving private airport operators to enhance their design capacity to 340 million passengers per annum from the pre-pandemic level of 150 million. Despite this significant capacity expansion, strong increase in demand could keep utilisation rates of these airports around 100 per cent by fiscal 2026.

Varun Marwaha, Associate Director, Crisil Ratings, said, “While the high utilisation rate justifies the large capex, credit profiles of these airports will also be supported by their regulatory business model. Tariffs for these airports are based on a fixed regulated return on capex in the next five years, which provides certainty regarding cash-flow return on the capex.”

Airports also earn from non-aero activities such as passenger spending within the airport ecosystem on items such as food and beverages, lounge, and retail.

In the past 10 years 103 airports have been added, and a further 41 airports are expected over the next few fiscals.

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