An expected increase of 10 percent in passenger traffic on the high base of FY24, combined with capital expenditure-linked tariff hikes and rising non-aeronautical revenue per passenger, will help leading private airport operators to record a 30 percent increase in their revenues, according to a study by CRISIL Ratings. The rising revenue will restore the cushion for debt servicing to around 1.4 times, taking it back to the level last seen before the Covid-19 pandemic. Airports had dipped into their cash reserve to service debt during this period. The study was conducted on 10 private airports, which accounted for an estimated 60 percent of overall passenger traffic in FY24.
Ankit Hakhu, Director at CRISIL Ratings, stated, “Taking off from the strong base of last fiscal, passenger traffic growth will continue its momentum in fiscal 2025 and rise more than 10 percent to over 415 million. Continuing economic growth, opening of more airports, and improving regional connectivity are providing the tailwinds necessary for domestic traffic growth.” On the international side, growing business travel and easing visa requirements to countries such as Malaysia and Vietnam, reducing wait times for visa applications to western Europe, and improving connectivity to western and Southeast Asia are significant positives for the sector, the ratings agency said in its report. As passenger volume rises, airports will see an increase in both aeronautical and non-aeronautical revenue.
Revenue from aeronautical sources include fees collected from passengers, airlines, and cargo operators for use of infrastructure. Non-aeronautical sources include advertising, retail, lounge, and duty-free shops. About two-thirds of the increase in the revenue of airports is expected to come from aeronautical sources (45 percent growth on-year). Almost half the airports in the CRISIL Ratings study will clock a pre-determined increase in their aeronautical tariffs by 25 percent on average. Aeronautical tariffs are regulated and allow for cash flow required by airports to service the debt availed for aeronautical capex and a return on equity for the operator. Airports had undertaken significant expansion during the Covid-19 pandemic to more than double their capacity in anticipation of the current spurt in passenger volume. The current rise in aeronautical tariffs is compensating for these capacity expansions.
The remaining one-third of the revenue growth will be driven by non-aeronautical sources (15 percent growth on-year) riding on the back of a steady increase in passenger spends on retail, food and beverage, as well as real estate leasing and advertising.
Varun Marwaha, Associate Director at CRISIL Ratings, mentioned, “The recovery in the revenue growth trajectory — after three years of decline led by the pandemic — comes at the right time to support the increasing debt obligations of private airport operators arising from the significant expansion during the pandemic period. With the projected increase in revenue, the debt cover of operators is expected to recover to 1.4 times, a level last seen before the pandemic between fiscals 2018 and 2020.” The projections remain sensitive to factors that can hamper air traffic growth such as a material worsening in aircraft availability, CRISIL added.
