Discouraging Prospects: Aviation stakeholders continue to face a worrisome situation

Aviation stakeholders continue to face a worrisome situation

The aviation sector has been the worst and the most directly impacted by the pandemic. While other infrastructure sectors have started witnessing signs of recovery, aviation is yet to see light at the end of the tunnel. This has led to revenue shortfalls, dwindling profits, and downsizing and deferment of capex plans. With partial resumption in air travel, operators and developers are somewhat hopeful about the sector’s recovery.

At a recent webinar organised by India Infrastructure, industry experts talk about the key issues impeding faster development of the sector, specific measures that the government should take, and recommendations for faster recovery during and post-Covid-19.

 Daniel Bircher, Chief Executive Officer (CEO), Zurich Airport Asia

The planning process for Delhi Noida International Airport has been ongoing since the beginning of this year. It has not been directly impacted by Covid-19 unlike other airports in the country. The concession agreement has been signed on October 7, 2020. Work will continue as planned and we are expecting to start physical work in six months to a year, depending on various factors. Operations will commence in 2024 and, at this stage, we plan to build the infrastructure to handle 12 million passengers per annum.

The completion of the Delhi Noida International Airport is still far into the future and the financial viability of the project is the main focus. The concession framework in India has gained maturity over time. One of the concerns is to look specifically at the rights of lenders and it is advisable to have another serious round of discussions on the role of airport owners, because many of the regulations that we see now in concession frameworks are reactions to previous concessions. Clarity on land monetisation is also an important element since, typically, a reasonably long period is required for investors for real estate development.

Rajeev Kumar Jain, CEO, Mumbai International Airport Limited, GVK

At Mumbai airport, passenger traffic is constrained not only due to a lack of demand, but also because of the state government’s directive of restricting the number of flights. From April 2020 onwards, overall traffic has been only 5.9 per cent of what it used to be earlier and it is expected to reach 22-23 per cent of normal traffic. This is quite low and certainly not sustainable. Load factors, which used to be 84-85 per cent for domestic traffic, are also quite low at around 58 per cent. By the end of the year, we could reach around 35 per cent of normal traffic levels. Cargo is doing slightly better at around 46 per cent of normal cargo demand and is expected to reach around 75 per cent by the end of this fiscal year.

During September 2020, traffic is expected to be around 19 per cent as compared to that in September 2019, though with further easing of restrictions, demand is expected to increase. However, only essential travel is taking place and there is hardly any business travel. Revenue is about 30 per cent of what it used to be earlier. This too is attributable to cargo since more number of freighters are operating.

Overall, by the end of the year, we expect to achieve 30-40 per cent of the previous year’s revenues.

While there are many operational challenges, the biggest challenge is liquidity. Since concessionaires are unable to pay, resetting of terms for all the concessions is being contemplated. At present, there is lack of clarity that how long it will take for business to achieve normalcy.

Though there was a temporary moratorium on loan servicing, it was only up to August 31, 2020. In addition to the general moratorium, we are expecting some workable solutions from the government. There is need for a short-term loan (with a tenure of about three years) to meet the revenue shortfall.

Kapil Kaul, CEO and Director, South Asia, CAPA

The trends have been encouraging since operations resumed on May 25. Week after week, we have been seeing a healthy trend. In the last week of May, there were roughly 40,000-45,000 passengers per day and now we are reaching 135,000-150,000 passengers a day sometimes. I would expect traffic levels to significantly catch up by March 2021. Overall, the numbers for domestic traffic are still going to be 40 million-50 million passengers for the whole year.

The future prospects for international traffic are a bit worrying as opening of borders requires a coordinated global effort and there has to be consistency in terms of rules and regulations. With respect to international traffic for 2020-21, at this stage, it seems difficult to cross 10 million passengers but we will stick to our forecast of 50 million passengers.

Earlier, advance purchase was a key part of airline ticket sales as people used to book very early, but now it is about 10 days. Also, there is not much difference in load factors during peak hours because, according to us, except for certain groups, particularly for Mumbai, they had less capacity, so the flights were very full. A uniform trend that has been observed is that we are not seeing peaks with high load factors and they seem to be consistent in every flight except some marginal changes where the capacity is less.

Currently, passenger air traffic constitutes mostly essential and emergency travel. We are not marketing that as much as we should, but air travel is safe. Of the 9 million-10 million passengers that travelled, the number of infections was roughly 2,500.

The motivation and the appetite to invest is very low at present, even though the traffic signs are encouraging and investments are for the long haul. At some point of time, things will get back to normal, but airlines need funds for the next two years till things will turn positive and then they would be able to make profits.

S.Sreekumar, Executive Director, Engineering, Airports Authority of India

The recovery from COVID-19 situation will be fast, than what is projected, in the case of domestic travel. The positive trend is visible at airports in Tier 2 and Tier 3 cities. For instance, at Patna Airport, more than 50 per cent of the flights have already started by September 2020 and the same is expected to reach pre-COVID-19 stage by December 2020. This is basically due to the movement of migrant labor   from the eastern part of the country to other parts. Small airports in the North are also catching up very fast.

At present, AAI is developing greenfield airports and has taken up the development of various other airports also. For construction activities, the first quarter (April-June) is the main working season and this year it was effected due to lockdown and COVID-19. By the time situation eased, the monsoon and flood situation at various parts of the country had badly hindered the construction activities in the second quarter. Hence, we were unable to do much work until September 2020. We aim to accelerate works on ongoing projects in the next six months so as to compensate the delay that has already taken place.

Due to the stoppage of flight activities, our revenue resources have also been drained out. Now, we are looking at alternate sources of funding to carry out the infrastructure works. As an extended arm of the government, we cannot stop any of the projects at this juncture. However, we have revised our project portfolio. We are now concentrating on short gestation projects instead of long gestation projects. We have registered a capex of only Rs 12.5 billion in the first half of the current financial year as against the target of Rs 50 billion in 2020-21. We are hopeful of spending the balance budget in the next six months. w