Second Covid wave to push recovery of air traffic to FY23-end: Crisil

Mumbai (Maharashtra) [India], June 15 : Air traffic is expected to slump in fiscal 22 and fully recover only by fourth quarter of next fiscal because of debilitating consequences of second Covid-19 wave in India, according to Crisil Ratings.
But the credit quality of airport operators will continue to be supported by strong business models and healthy liquidity covers amid low debt servicing requirements this fiscal.

Crisil said this is based on an analysis of the top four private airports -- Delhi, Mumbai, Bengaluru and Hyderabad -- which account for 90 per cent of air passenger traffic handled by private airports in India and 50 per cent of all air traffic.

A raging second wave has resulted in localised lockdowns, night curfews and other restrictions on movement of people.
Consequently, passenger traffic at airports nosedived with average daily domestic passenger traffic halving in May from February or to a mere 10 per cent of pre-pandemic levels seen in May 2019.

Manish Gupta, Senior Director at Crisil Ratings, said the second wave will push back revival of business travel and pick-up of international traffic which account for over half of overall traffic.
"Given this backdrop, we now expect traffic volumes this fiscal to be 60 per cent of fiscal 2020 levels and recovery to pre pandemic levels happening only by fourth quarter of fiscal 2023."

Traffic volumes are expected to rebound once the present affliction curve starts to flatten. Ramp-up in domestic traffic was seen after the recommencement of airport operations in May 2020 with total passenger traffic reaching 60 per cent of fiscal 2020 levels by February 2021, that is within nine months of first domestic travel advisory.
Crisil said a much faster recovery is expected this time based on the ongoing vaccination drive, push from government to limit the economic impact and recovery trajectory seen in countries that have emerged from a second wave.

In fact, recovery indicators from the United States and Europe are positive and exhibit faster recovery post second wave.
Still the normalisation in India is expected only by fourth quarter of fiscal 2023. This will lead to loss of Rs 900 crore revenue from earlier pre-second wave expectation of Rs 7,500 crore of revenue in fiscal 2022.

Ankit Hakhu, Director at Crisil Ratings, said a fall in revenues will not impact the credit profiles of airports because of their strong business models and healthy liquidity covers -- cash and unutilised working capital lines is at over 16 months of debt servicing requirements in fiscal 2022.
Besides, these airports are in metropolitan cities which will see a quick return of traffic and revenue when the overall economy stabilises.

But debt servicing obligations of airports will double next fiscal onwards as the servicing of debt taken for on-going capacity expansion will start. Hence, said Crisil, timely traffic and revenue pick-up for maintenance of debt service covers will have to be monitored.