Bouyant on the festive season and growth in international travel, air passenger traffic is expected to reach 93% of the pre-pandemic levels in FY23 and surpass the pre-Covid levels in FY24.
The FY23 growth would be about 70% on a year-on-year basis and would mark a ‘V-shaped’ recovery for the sector, according to a report by CareEdge Ratings.
A full recovery in international traffic is expected by early FY24, combined with steady domestic traffic growth. On an overall basis, passenger traffic is expected to surpass the pre-Covid level by 1.12 times in FY24. However, the recurrence of Covid-19 and its impact on air travel would be the key monitorables.
“The rising working population and widening middle-class demography will propel passenger growth. Declining fare gap between rail and air, new fleet additions by major airlines would also drive passenger growth. Thrust on greenfield and brownfield expansion of airports is also a significant driver for passenger traffic growth,” it said.
India has the largest working population, with 67% of the total population in the working age group of 15-64 years as of 2020.
The resumption of international traffic from March this year increased vaccination pace and the receding impact of Covid-19 led to a steady recovery in airport passenger traffic. After the third wave in the fourth quarter of FY22, passenger traffic touched 90% of the pre-Covid levels in the first quarter of FY23 (compared with the same quarter of FY20).
Over FY23-FY25, CareEdge Ratings expects air traffic growth rate to be at 2.25 times that of the GDP growth rate, primarily due to the low base in FY22.
There is a multiplier effect between passenger growth rates and GDP growth rates. During FY16-FY20, the compounded annual growth rate (CAGR) of passenger traffic was 1.80 times that of GDP, it said.
For airport operators in the country, India’s GDP growth and its multiplier effect on air passenger traffic growth with favourable demographics of a rising working population would augur well. The improving regulatory environment and timely issuance of tariff orders will also pave the way for timely revenue visibility.
During the Covid period, the Airport Authority of India (AAI) had offered relief to airport operators by exempting claims on revenue share. Due to this, in FY22 the operating profit before interest, lease, depreciation and tax (PBILDT) margins remained at a healthy level of 56%.
However, with the resumption of revenue sharing with the AAI, PBILDT (a key indicator of profitability in any manufacturing and service sectors) margins are likely to drop to 37% during FY23. From FY24, PBILDT margins are likely to stabilise at about 45%, mainly supported by the increased scale of operations, it said.
The estimated fund inflows from the monetisation of 14 airports and divestment of AAI’s stake at existing airports would be at Rs 13,000 crore till FY23.
The national monetisation pipeline had identified 25 airports for monetisation. Against the backdrop of such ambitious timelines with no commensurating initiatives for monetisation, CareEdge Ratings believes that these timelines are likely to be further deferred, thus necessitating intervention from the government.