Despite Aircraft Grounding, Indias Air Passenger Traffic to Soar

Despite the grounding of approximately 200 aircraft by March 2024, the impact on air passenger traffic is expected to be minimal, according to a report by credit ratings agency CareEdge. The report projects that air passenger traffic will reach around 375 million passengers in the current fiscal year, which is 1.09 times the pre-pandemic levels.

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Reasons Behind Minimal Impact

The minimal impact on traffic is attributed to the extension of wet leases and an increase in passenger load. Wet leases involve leasing aircraft along with crew, maintenance, and insurance, allowing airlines to operate flights without owning the aircraft. The increase in passenger load refers to the higher number of passengers per flight, optimizing aircraft utilization.

Robust Domestic Traffic and Recovery in International Traffic

CareEdge Ratings predicts that passenger traffic will continue to grow in the coming years, with a healthy Compounded Annual Growth Rate (CAGR) of 14% from FY23 to FY25. This growth is driven by the robustness of domestic traffic and a complete recovery in international traffic.

Improved Leverage for PPP Airports

The report also highlights an improvement in leverage for Public Private Partnership (PPP) airports in FY24. This improvement is supported by the buoyancy in passenger volumes and the anticipated tariff hike for certain airports. Additionally, non-aeronautical revenue per passenger is expected to increase by 1.4 times in FY24 compared to pre-Covid levels, driven by an increase in transaction value per passenger.

Regulatory Environment and Tariff Computation

CareEdge Ratings emphasizes the need for establishing parity in the tariff computation method for major and non-major airports to reduce delays following the privatization of non-major airports. This would create a more favorable regulatory environment for the airport sector.

Regulatory Asset Base and Cash Flow Cushion

The Airports Economic Regulatory Authority (AERA) has approved a significant increase in the Regulatory Asset Base to support capacity expansion and efficiency enhancements. This increase pertains to seven tariff orders issued to PPP airports in the last two years, which bodes well from a credit perspective. However, AERA has deferred about 12% of the approved aggregate revenue requirements to the subsequent control period, which may dilute the cash flow cushion in the initial years.

In conclusion, while the grounding of 200 aircraft may raise concerns, the impact on air passenger traffic is expected to be minimal due to various mitigating factors. The industry is witnessing robust growth in passenger traffic, improved leverage for PPP airports, and a favorable regulatory environment. However, challenges such as deferred revenue requirements may require careful management to ensure the long-term sustainability of the aviation sector.