While the Indian aviation sector has been on a phenomenal growth path over the past decade, last year it took a hit owing to the Covid-19 pandemic and the resultant restrictions on international and domestic flights. The total traffic at Indian airports declined by 66.2 per cent in financial
year 2021 to 115.38 million passengers (105.25 million domestic and 10.13 million international), a level last seen in financial year 2008. While domestic traffic declined by about 62 per cent, the fall in international traffic was 85 per cent. Aircraft movement witnessed a decline of over 53 per cent and freight traffic registered a dip of 26 per cent.
Key government initiatives
Under the Union Budget 2021-22, the government has allocated Rs 32.25 billion for the Ministry of Civil Aviation (MoCA). As per the government’s annual financial statement, Rs 31.74 billion has been allocated for revenue disbursement, while Rs 355 million has been allocated for capital disbursements to the civil aviation sector. A National Monetisation Pipeline of potential brownfield infrastructure assets will be launched, and an asset monetisation dashboard will be created to track the progress and provide visibility to investors. The Airports Authority of India (AAI) will roll out airports in Tier II and Tier III cities under the asset monetisation programme. Further, the Ministry of Finance has announced that the disinvestment of Air India and Pawan Hans will be completed in 2021-22.
On July 5, 2021, the government allowed airlines to marginally increase domestic flights from 50 per cent of pre-Covid numbers to 65 per cent. Tax benefits and other exemptions will also be provided to aircraft leasing companies that set up shop at Gujarat International Finance Tec-City. These benefits include tax holidays to facilitate capital gains for aircraft leasing companies and tax exemption for aircraft lease rentals paid to foreign lessors. The goods and services tax rate on maintenance, repair and overhaul (MRO) services has been reduced from 18 per cent to 5 per cent with full input tax credit. Also, a convergence between the defence sector and the civil MROs is expected to be established to create economies of scale.
Key trends
Growing focus on low-cost no-frills airports
AAI has, for a long time, been following a model of developing no-frills airports for smaller cities. These airports are modular in design, consisting of prefabricated structures with maximum use of natural light, and optimum commercial spaces. Rupsi airport was recently inaugurated and started operations on May 8, 2021 under the Regional Connectivity Scheme (RCS) – Ude Desh ka Aam Naagrik. The MoCA has reported that 57 unserved and underserved airports (including five heliports and two water aerodromes) with 347 routes have been operationalised under the RCS across the country. In March 2021, the government inaugurated 22 new routes under the RCS, six of which are in Northeast India. These include Shillong-Agartala, Shillong-Silchar, Dibrugarh-Dimapur, Gorakhpur-Lucknow, Kurnool-Bengaluru, Visakhapatnam-Chennai, Agra-Bengaluru-Bhopal, and Prayagraj-Bhubaneswar-Bhopal.
Big-ticket projects gaining ground
A number of greenfield airports are slated to come up in the next three to four years. Large-scale projects include Jewar airport, Navi Mumbai airport, Mopa airport, Dholera airport and Bhogapuram airport. The government has also granted in-principle approval for the development of 20 greenfield airports, including second airports at several places.
Existing airport expansion on the rise
Around Rs 1.4 trillion is planned to be spent on airport infrastructure in the next five years, of which Rs 250 billion is planned to be spent by AAI. Over Rs 60 billion will be spent in 2021-22 by AAI on runway expansion/strengthening, new terminal construction, etc. Also, new terminal buildings are planned to come up at 15 airports and work is in progress at 12 airports. Expansion of existing terminals is under way at nine airports.
Ancillary infrastructure drawing attention
AAI has set up a subsidiary, AAI Cargo Logistics and Allied Services Company Limited, which handles almost 30 per cent of the country’s total air cargo. International cargo facilities have recently been established at Aurangabad/Thiruvananthapuram and Indore, and a new domestic cargo terminal has been inaugurated at Surat.
Rising investor interest
Investors have shown confidence in the country’s airport sector. Adani Airport Holdings Limited (AAHL) has taken over management control of Mumbai International Airport Limited from the GVK Group to become the country’s largest airport infrastructure company. According to a regulatory filing on July 14, 2021, AAHL will hold 97.97 per cent stake in GVK Airport Developers Limited, pursuant to the rights exercised by it as a lender to the company.
Impact of Covid-19
On airport projects
India Infrastructure Research has tracked a total of 172 airport projects, of which 72, worth Rs 85 billion, are under construction. The Covid-induced lockdown has impacted construction activity due to shortage of labour, slow pace of work on account of social distancing, and days lost. There are also issues pertaining to procurement of material and equipment for construction work. Projects are expected to be delayed by at least three to six months. With capex plans being deferred, equipment procurement plans will also be postponed by two to three years. The Chennai Airport Phase II Modernisation Project and construction work on the Jewar International Airport in Greater Noida have been delayed due to Covid-induced restrictions.
On non-aeronautical revenues
In recent years, airports had started generating a significant share of their overall revenue from non-aeronautical sources. However, Covid-19 has dealt a huge blow to non-aero revenue streams. The sharp decline in footfalls at airports, coupled with passengers maintaining adequate social distancing and remaining cautious of the virus spreading through surface contact, has had a strong impact on the revenues of retail shops at the airports.
On technology deployment
The Covid-19 outbreak in the country has brought the concept of physical distancing to the forefront. For most airports, technology has come to the rescue. In the battle against the virus, airports have prepared standard operating procedures (SoPs) for staff and passengers to follow. Contactless plane boarding procedures are already being followed at most airports in the country. The Delhi, Bengaluru and Hyderabad airports have introduced biometric boarding systems, while India’s first artificial intelligence (AI)-enabled temperature screening airport gate has been installed at Kannur airport. Mobile apps are also gaining importance in ensuring contactless commerce at airports. India’s first AI-enabled Covid-19 testing facility for international passengers has commenced operations at Terminal 3 of the Indira Gandhi International Airport. The facility is run by an AI system using computer vision technology and a paper-free back end for processing mass volumes of international passengers. As per the company, passengers of an entire international flight can be tested within a couple of minutes by using the scalable node architecture, complete digital systems for patient entry, AI-driven process improvement and SoP management.
The way forward
According to CAPA, the metro-metro network (airline network between two metropolitans) is likely to rebound to 53.7 per cent, while the metro-non-metro network will rebound to 80 per cent and the non-metro-non-metro network to 70 per cent of pre-Covid-19 levels in financial year 2022. International flights are expected to continue under air bubble agreements in financial year 2022, with air traffic recovering to 47.8 per cent of pre-Covid-19 levels by March 2022. Domestic passenger traffic is expected to be around 80-95 million in 2021-22, as against 52.5 million in the previous financial year. However, despite this growth, it will be well below the levels recorded in 2019-20 (around 140 million). This projection of the traffic volume does not take into account the anticipated third wave of the pandemic. That said, the outlook for the Indian aviation sector continues to be fairly cautious. This could have a bearing on the implementation of big-ticket projects, as the sector continues to face mass underutilisation of existing capacity.