Long-Term Demand Drivers Intact for Airports Despite Decline in Passenger Traffic

Despite a 2.4% passenger traffic decline in 5MFY27, the long-term demand for drivers is intact for airports.

Overall passenger traffic declined 2.4% yoy in 5MFY27, with a modest 1.1% yoy fall in domestic traffic partly offsetting a 7.7% yoy decline in international traffic amid geopolitical tensions in West Asia and elevated fuel costs on certain routes.

FY27 traffic may remain muted, due to elevated fuel cost, capacity constraints, and continued geopolitical tensions. However, performance across the six major airports – Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, and Mumbai – remains mixed.

“Government measures, including aviation turbine fuel price caps and liquidity support, have helped stabilise domestic traffic. We believe a proposal under consideration to allow certain airport operators to own or operate airlines is unlikely to have immediate rating implications; the eventual credit impact would depend on the final regulatory framework and the resulting financial and operational linkages”, says Samantkumar Jha, Associate Director – Global Infrastructure Ratings, Ind-Ra.

The proposal is to allow airport operators to own airlines, with the stated objective of increasing the number of participants in a domestic market where IndiGo and the Air India group together account for about 90%.

For airports, airline ownership could enhance passenger growth, route development, and non-aeronautical revenue generation, complementing diversified revenue streams, regulatory oversight, and ring-fenced structures.

For airlines, association with airport operators could provide access to long-term capital and support network expansion and operational development. However, the credit impact would depend on whether such arrangements improve operating performance and cash flow generation while preserving the standalone financial profiles of both airlines and airports.

“Ind-Ra will monitor the evolution of the proposed framework, including the nature of investments, funding commitments, and other financial and operational linkages between airport and airline entities. The effectiveness of ring-fencing, and any impact on leverage, liquidity, and financial flexibility, will remain key considerations in assessing their standalone credit profiles.” it said.