The aviation industry has been going through turbulent times, having been hit by two waves of the Covid-19 pandemic. Disruption in air traffic has severely impacted airport authorities’ bottom lines. Recovery in air traffic is expected to be gradual, depending on the pace of vaccination roll-out and relaxation of international travel restrictions. However, the long-term prospects for the sector appear bright on the back of airports’ capacity augmentation plans under the National Infrastructure Pipeline and privatisation drive of the government.
Traffic performance
Even as the aviation industry was gradually recovering from the first wave of Covid-19, the economy fell into the grip of the second wave in April 2021. Air traffic halved in May and remained low in June. Domestic passenger traffic started recovering from July, reaching a 2021 high of 8.8 million passengers in October. Domestic air passenger traffic rose about 67 per cent year on year and 24 per cent sequentially to about 8.8 million passengers in October 2021 following a revival in travel sentiment during the festival season and a steady fall in fresh Covid-19 cases. In September 2021, domestic air passenger traffic grew 5.45 per cent, with around 7.07 million passengers traveling compared to 6.7 million in August 2021. Domestic traffic has seen significant growth since June 2021, with the easing of lockdown restrictions following a steady decline in fresh Covid-19 cases, giving more people confidence to undertake travel. Scheduled domestic airlines were allowed to operate up to 100 per cent of their pre-Covid-19 capacity on domestic flights from October 18, 2021, which means airlines had the opportunity to shore up their capacity during the festival season.
The Airports Authority of India (AAI) reported a fall in revenue from Rs 29.76 billion during April-June 2019 to Rs 8.89 billion during April-June 2021 on account of the second Covid-19 wave. According to rating agency ICRA, given the resurgence of the second wave of the pandemic, the recovery in passenger traffic will only be gradual, with domestic passenger traffic expected to reach pre-Covid levels only by 2023-24. Elevated aviation turbine fuel prices and fare caps continue to pose a challenge for the profitability of airlines. Thus, the Indian aviation industry is expected to report a net loss of Rs 250-260 billion in 2021-22. The debt levels will remain high for the industry and are estimated to increase to Rs 1,200 billion (including lease liabilities) during 2021-22, with the industry requiring additional funding of Rs 450-470 billion over 2021-22 to 2023-24.
Revisiting relief measures
The government has taken numerous steps to help the aviation industry overcome the crisis due to Covid-19:
- Route rationalisation in the Indian airspace in coordination with the Indian Air Force for efficient airspace management, shorter routes and reduced fuel burn
- Goods and services tax rate on maintenance, repair and overhaul (MRO) services reduced from 18 per cent to 5 per cent with full input tax credit; convergence between the defence sector and civil MROs to be established to create economies of scale
- Stipulating fare band for airlines
- Benefits under the Emergency Credit Line Guarantee Scheme (ECLGS) 3.0 extended to the civil aviation sector
- Exclusive air bubbles established with 28 countries for restarting international passenger services while regular international flights remain suspended due to Covid-19
Update on key projects and initiatives
Greenfield airport projects at Navi Mumbai, Jewar, Mopa, Purandar, Bhogapuram and Dholera have made significant headway despite disruptions on account of Covid-19. New capacity has been created with the commissioning of the Kannur, Durgapur, Shirdi, Pakyong and Kalaburagi airports. Airport privatisation is one area that has continued to gain steam even amidst the disruptions. Award of airports under the first round of privatisation has been completed. Under the government’s stimulus package, six airports have been identified for the second round of bidding.
The Regional Connectivity Scheme (RCS) continues to play a major role in adding new airports and routes to the aviation landscape. As of October 28, 2021, 389 RCS routes have already commenced, connecting 62 unserved and underserved airports, including two water aerodromes and five heliports. Over 50 airports are planned to be added in the next two to three years. In fact, online travel services firm MakeMyTrip will power UDAN flights on the AirSewa portal and market them on its platform to provide air connectivity to underserved destinations.
Technology adoption
With Covid-19, the customer profiles of airports have changed. The Total Airport Management System is an upcoming concept, which encompasses entire airport operations, linking all the stakeholders on a single platform. Digital projects related to passenger processing, passenger flow, on-time performance and baggage handling are emerging as priority areas. The CCTV analytics system contributes to effective queue and apron management, meeting airside speed regulations, and preventing mask and social distancing violations in the terminal building. One of the notable features of CCTV analytics is that it is significantly more cost-effective than sensor-based systems. The cost of these systems is approximately one-fifth of the cost of a traditional sensor system.
As many as six airports in India will soon use facial recognition technology for facilitating biometric boarding. Trial projects based on the technology are currently under way at Bengaluru, Hyderabad, Kolkata, Pune, Varanasi and Vijayawada airports. Following the completion of the trial projects at these airports, the system will be implemented in a phased manner across all airports in India.
Bangalore International Airport Limited (BIAL), operator of Kempegowda International Airport, Bengaluru, has collaborated with Microsoft India on the BIAL Genie Hackathon to develop an app using Microsoft Azure. The hackathon invites professional developers, data scientists and data engineers to design solutions that will improve the end-to-end passenger experience at Bengaluru airport. It began on October 27, 2021, and will end on January 21, 2022, and calls for solutions ranging from planning the journey and boarding the flight to arriving at the destination airport.
Capacity creation
Around Rs 1.4 trillion is planned to be spent on airport infrastructure in the next five years, of which AAI targets to spend Rs 250 billion during this period. Over Rs 60 billion will be spent during 2021-22 by AAI on runway expansion/strengthening, new terminal construction, etc. This will include all major airports such as Guwahati, Leh, Patna, Trichy, Vijayawada, Jabalpur, Chennai, Srinagar, Pune, Lucknow, Agra and Jaipur. After completion of all the works, the combined capacity of the airports is likely to be increased by 100 mppa. New terminal buildings are planned to come up at 15 airports. Works are in progress at 12 airports. Besides, expansion of existing terminals is under way at nine airports. New civil enclaves are being developed at seven airports, of which two (Adampur and Darbhanga) have been operationalised.
Next steps
Over time, service quality standards and regulatory frameworks have evolved in the Indian airport sector. Airport concessions have also become clearer. However, regulatory issues regarding fuel charges, income tax frameworks and land use policy have reduced profitability prospects for private airports. Recent policy regulations have favoured airlines more, at the expense of airports. Thus, there is a need to balance stakeholders’ interests between the airlines and airports. Debt financing of airport projects continues to be a key challenge. Besides, shortage of trained manpower, high operating costs, infrastructure bottlenecks and lack of adequate incentives are other key issues facing the airport sector. Proper frameworks should be in place for non-aeronautical revenue streams. Besides, more clarity is sought on service charges for airports and airlines. The per passenger fee model seems to have made the award of projects easy. Moreover, Kannur could be looked at as an example of an innovatively funded project with several individual shareholders. Passenger facilitation is another area that needs attention and improvement. India needs to leapfrog into the digital era sooner or later. There are tremendous opportunities in the areas of airport digitalisation and analytics. Going forward, Tier II airports will not only see higher traffic but also improved passenger experience with AAI initiating a number of measures in this area.