 "airports, airlines, airtravel, passengers, airport terminals")
The rapid increase in new coronavirus cases is credit negative for Indian airports, given the adverse effect on passenger and aircraft traffic which are key revenue drivers for the sector, Moody's Investors Service said on Monday.
Before the recent resurgence, India had contained the spread of virus and infection numbers had fallen after the previous peak in mid-September 2020.
The steady decline over that time had allowed for a gradual increase in total airline seat capacity and for domestic passenger traffic to recover to around 60 per cent of the 2019 level by February-end.
"The surge in infection numbers will heighten health concerns, renew economic uncertainty and temper consumers' willingness to travel. Higher infection numbers could also force the reintroduction of travel restrictions that will drastically reduce passenger traffic," said Moody's in its latest credit outlook.
Most of Indian airports' revenue is linked to airport traffic, including aeronautical revenue that is collected on a per-passenger or aircraft-movement basis, and non-aeronautical revenue such as retail, food and beverage as well as car parking.
For example, Delhi International Airport Limited (DIAL) reported revenue declines across all its business segments amid a sharp drop in passenger traffic in the nine-month period that ended on December 31, 2020
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Moody's said a disruption to the recovery in domestic passenger traffic is credit negative for the two rated Indian airports.
Revenue decline resulting from a fall in traffic will further dampen already weak financial metrics for DIAL and GMR Hyderabad International Airport Ltd (HIAL) in the current fiscal year (ending 31 March 2022) and also reduce the funds available for capital spending during the affected period.
Based on daily domestic passenger and aircraft data, passenger traffic has not yet materially dropped despite the rise in infection numbers over the past month, although there are early signs of a slowdown in traffic.
"We believe the impact of a sharp rise in infections on underlying consumer demand could take several weeks to fully materialise. At the same time, a more significant concern for airport traffic will be a reintroduction of travel restrictions which will limit air travel irrespective of consumer demand."
More than half of the new cases in recent days have come from Maharashtra which has tightened restrictions by introducing a statewide lockdown on weekends as well as a night curfew from 8 pm to 7 am.
Tighter restrictions, particularly if they are introduced in more states, could lead to sharp declines in passenger traffic until the situation is contained and could materially cut airport revenue.
Beyond the impact on domestic traffic, the recent outbreak will also likely delay the reopening of international borders which has recently been postponed to April-end.
Although international passengers only represent a small component of total passenger traffic in India, airports generally earn a higher amount on a per-passenger basis from this segment after accounting for duty-free retail.
Duty-free retail accounted for 15 to 20 per cent of total non-aeronautical revenue at the rated airports before the pandemic. Delay in passenger recovery will weigh on airports' credit quality.
Moody's said rated airports' credit quality will potentially weaken if the severity and duration of the second wave reaches a level that would lead to liquidity stress or challenge their ability to return to a level of cash flow generation which supports their current ratings.
Assuming that the latest surge will eventually be contained, the longer-term passenger outlook will continue to be driven by successful rollout of vaccinations which should reduce the need for lockdowns and boost consumer confidence.
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