India's airport sector is set to experience substantial growth in capital expenditures (capex) over the next three years, with projections indicating a 12% increase in investment. According to a report by CRISIL, the cumulative capex for Indian airports is expected to rise from US$ 6.24 billion (Rs. 53,000 crore) during the period 2022-24 to US$ 7.07 billion (Rs. 60,000 crore) by FY27. This investment will help meet the growing demand for air travel and support the development of necessary airport infrastructure.

1. Investment in Airport Infrastructure:

The significant increase in capex is expected to support the addition of infrastructure for 65 million additional passengers annually. This investment will focus on various critical areas, including the development of terminal buildings, runways, and non-aeronautical facilities like lounges, parking areas, food and beverage outlets, and retail spaces. These upgrades are designed to accommodate the growing volume of air passengers and enhance the overall passenger experience while diversifying revenue streams for airports.

2. Financing and Revenue Growth:

Approximately 70% of the capex will be financed through debt, with the remaining balance funded by internal resources and equity. Despite the reliance on debt, CRISIL anticipates that the credit profiles of private Indian airports will remain strong. This is due to projected revenue growth, which is expected to rise at an average rate of 17% between FY25 and FY27. This revenue growth will be driven by higher tariffs and increased spending within the airport ecosystem, especially in non-aeronautical segments such as retail and food services.

3. Passenger Traffic Growth and the UDAN Scheme:

The growth in passenger traffic is expected to be robust, with a CAGR of 8-9% from FY25 to FY27. India recorded 376 million passengers in FY23, and this number is expected to continue rising as demand in both the business and leisure segments increases. The Indian government’s regional connectivity scheme (UDAN), which aims to connect smaller cities to the broader aviation network, is expected to play a crucial role in boosting regional traffic. With the operationalisation of 84 airports and 579 routes under this scheme, the UDAN initiative will contribute additional feeder traffic to major airports, further driving the demand for air travel.

4. Key Growth Drivers in Domestic Air Travel:

Domestic air travel accounts for over 80% of total passenger volume in India and is poised for continued growth. Rising disposable incomes, a growing middle class, and government initiatives to make air travel more affordable will continue to benefit the sector. In addition, increasing demand in both the business and leisure segments will further fuel domestic air travel growth, contributing to overall airport revenue.

5. Impact of Non-Aeronautical Revenue:

As airports expand and modernize their facilities, the focus will not just be on expanding the core aeronautical services but also on enhancing non-aeronautical revenue. This includes increasing offerings in retail, food and beverages, and lounges, which will serve to boost the overall profitability of airports. The growth of non-aeronautical revenue will be critical in helping airports mitigate the risks of relying solely on aviation-related activities, ensuring long-term financial stability.

6. Strong Outlook Despite Debt Financing:

The debt-financed nature of the investments might raise concerns over financial stability, but the outlook remains positive. The expected growth in airport revenues, especially with the increase in passenger traffic and the expansion of non-aeronautical services, will allow airports to maintain their credit strength. The ongoing investments in infrastructure will enable airports to serve more passengers and cater to rising demand, ensuring continued financial viability.

Conclusion:

India’s airport sector is on a strong growth trajectory, with US$ 7.07 billion (Rs. 60,000 crore) in capital expenditure planned over the next three years. This investment is vital for meeting the needs of a growing air travel market and supporting the expansion of India’s airport infrastructure. With rising domestic and regional travel, combined with improvements in non-aeronautical facilities, the sector is poised for robust growth. While the significant debt financing is noteworthy, the anticipated revenue growth from both aeronautical and non-aeronautical sources ensures that the sector’s credit profiles remain strong, contributing to the continued success and expansion of India’s airports.