Wednesday, May 08, 2019

Airlines in trouble, but not airports

With airlines in the midst of a crisis — stemming from Jet shutting down operations and technical glitches in 737 affecting the frequency of flights at major airports, the travellers encounter a piquant situation (scramble to book tickets at high prices). At the same time, there is a question lurking in the minds of many — is the ebullient airport sector likely to see a melt-down?

The current airport model offers adequate cushion given the return-driven regulatory model therefore, there is a possibility of cash-flow mismatches but not a material or immediate threat to the credit quality of these assets.

However, the nervousness gripping the sector will impact the passenger (pax) volumes and thus decelerate pax growth in FY20. The growth in Q1 CY20 has remained almost flattish at about 5 per cent and March 2019 pax was just a mirror image of March 2018.

That being said, there are areas that could inflict pain for airports such as decelerating pax leading to subdued non-aero revenues — revenues from reduced sales at the shops in airport.

Although a major source of income (ranging between 35 and 55 per cent in airports) the impact assessment on this would be premature given the possibility of quick ramp-up by other airlines.

Undoubtedly, this could be either a mediocre or muted growth phase for airports for the current decade. However, this could aid airports in managing loads as there are ongoing expansions, capacity constraints (Mumbai) and lack of new slots. At the same time, the pax growth could dampen during the season of travel (April and May).

Also, the grounding of 737 Max owned by SpiceJet adds the pressure on air traffic. However, the impact could be moderate as the number of flights is only 18. If airlines decide to scale back fleet expansion plans, pax volumes could be further negatively impacted.
08/05/19 Siva Subramanian/Vishal Kotecha/Business Line