By Vijay Grover
Even on a typical day, large airports are demanding operating environments. The Covid 19 pandemic posed challenges of unseen proportions, with revenues plunging to less than half in most cases.
According to earnings data for airports, their collective losses were INR 2,882.74 crore in FY2021 (loss of INR 465.91 crore in FY19), reflecting the impact of the COVID-19 pandemic. The figure is estimated to cross 5000 crores in the current fiscal year after the second wave hit in mid-2021 and the present third wave, which has tapered off the traffic rise between October to December 2021.
The Mumbai international airport reported losses of INR 331 crores in FY 2020-2021, while Delhi reported a loss of INR 313 crores in the same year. The AAI controlled Chennai Airport suffered losses of over INR 271 crores in FY ending March 2021.
As travellers cancel trips, countries close their borders with little warning, and airlines announce unprecedented austerity programmes, COVID-19 impact on airport operations becomes visible. The busiest airports in India, Mumbai, Delhi, and Bengaluru, were the worst hit with a steep drop in passenger traffic.
The Indian airports saw 23 million passengers in November 2021, numbers lower than 31 million passengers in November 2019. While the statistics for November 2021 fare better than the earlier months between March and August 2021.
India saw only 2.51 million international pax in November 2021, less than half of the over 6 million passengers in November 2019.
The slowdown in worldwide travel has hurt the 26 international airport revenues badly. The majority of the international airports’ revenue models were hit adversely as in most airports, high-end retail and duty-free sales account for 20% of the revenues. With international traffic down to nearly a third and with no recovery in international travel during the tourist season, many suffered deep losses on this account. Even the steep dip in the International User Development Fee (UDF), which is much higher than the domestic UDF, saw several major international airport operators demand a hike in the UDF. However, the demand was shot down by the Airports Economic Regulatory Authority (AERA).
In the face of such uncertainty, with no telling when the business will be back to normal or how significant its impact will be, most Indian airports are scrambling to reduce their overheads and costs. Capital and operational expenditure are being scrutinised, and cost-cutting measures are introduced in a last-ditch effort to reduce risk, find cost savings, and future-proof operations. While the Delhi International Airport shut its T2 terminal following the drastic drop in traffic after the first wave, it helped the airport management cut operational costs. The move was much inspired by Singapore’s Changi Airport, which also shut one of its terminals during the COVID slump.
Airports adopted different strategies for controlling costs. While some of the airports shut some areas in the airport complexes to reduce lighting, air conditioning and sanitisation costs. Mumbai International Airport, which saw a management change, refused to share any of its cost-cutting measures; IA&D learns from sources that several operations were pruned to control the cargo handling and terminal management costs in control. Several shifts of employees were restructured to minimise losses.
In most of the Airport Authority of India, controlled 11 airports in India, expansion and maintenance projects were put on abrupt hold, citing paucity of funds. The unions at the AAI run airports citing safety concerns, stopped some of the cost-cutting measures suggested by the Officials. A source at Coimbatore Airport told IA&D that runway improvements and recarpeting of the runway were sanctioned as late December 2021 after the issue was flagged several times, with the ministry citing safety concerns. Several other AAI projects sanctioned in the last three years continue to linger on as funds for the same are yet to be released.
“The positive environment in 2021 ignited hopes for a better 2022 in terms of recovery. However, the recent outbreak of the new Omicron variant followed by a rapid surge in COVID-19 cases across the country is expected to suppress growth further,” says Hari Marar of BIAL.
In an environment where safety, security, passenger comfort, and smooth operations are critical, maintaining the balance is becoming difficult. While the Airports Authority of India cut down its budget for maintenance from INR 1258 crores last year to approx. INR 956 crores in the current financial year. However, the move is being questioned by many aviation experts who feel that maintenance is essential for smooth operations.
Under the current projection and considering the slower than expected fourth quarter of 2021, global passenger traffic is expected to recover to 2019 levels in early 2024. The overall recovery will mainly be driven by the recovery of domestic passenger traffic but will be hampered by a slower recovery in international travel. Global domestic passenger traffic is still expected to reach 2019 levels in late 2023, but global international passenger traffic will require one more year to recover and will reach 2019 levels only by the end of the third quarter of 2024.
At the country-market level, markets with significant domestic traffic are expected to recover to pre-COVID-19 levels from mid-2023 to late-2023. Markets with substantial shares of international traffic are unlikely to return to 2019 levels until 2024. However, because of the uneven availability of vaccines and worsening two-track economic recovery, some emerging and developing country markets will probably not reach 2019 passenger levels before 2025.
Luckily, for airports like Bengaluru International Airport (BIAL), the growth in cargo movement helped ease the pressures. The Kempegowda International Airport, Bengaluru (BLR Airport) recorded it is highest-ever cargo tonnage, despite a turbulent pandemic environment. During the Calendar Year 2021 (CY 2021), BLR Airport processed an all-time high tonnage of 406,688 Metric Tonnes (MT) of cargo, recording a significant growth of 28.6% vs 316,305MT in 2020.
International cargo from Bengaluru recorded a 32.8% growth, 265,873MT processed, compared to 200,209MT in 2020. Domestic cargo grew at 21.3%, 140,815 MT processed versus 116,096MT in 2020. The US and Europe continue to be the top trade lanes from BLR Airport.
“The tremendous recovery in air cargo is a positive sign for the aviation sector that has been severely impacted by the pandemic,” said Mr Hari Marar, MD & CEO, Bangalore International Airport Limited. “The key factors that contributed to the cargo growth at BLR Airport are our resilient ecosystem that ensured efficient operations round the clock; focus on supply chain efficiencies; conducive geographic location, aided with robust infrastructure and technology; the right mix of commodities, and adequate airline capacities to key markets, globally,” says Hari Marar CEO, BIAL.
The Ministry of Civil Aviation asked AAI to recently award six airports in Ahmedabad, Jaipur, Lucknow, Guwahati and Thiruvananthapuram and Mangaluru for Operations, Management and Development under Public-Private Partnership (PPP) mode, is looking at handing over as per the National Monetisation Pipeline. These 25 AAI airports have been earmarked for asset monetisation between 2022 and 2025. The question in many minds is that when the sector is bleeding losses, will the proper valuation of AAI be able to get the suitable takers.
