(i) Cochin International Airport is the first greenfield airport in the country built with public-private partnerships. Planned and constructed from scratch, the airport has been acclaimed for setting a novel idea in infrastructure development. The astonishing public participation, relentless support from NRIs and effective leadership have made CIAL, the company that built and operates the airport, an international brand. It is also the first airport in the world fully powered by solar energy. Ever since commercial operations started on 10th June 1999 with an International flight to Dammam. CIAL has grown rapidly becoming the 4th largest International Airport in India in terms of international passenger traffic in just four years.

(ii) Mr.V.J.Kurian IAS is the founder managing director of the company and the project itself is his brainchild. With the guidance and patronage of Late Mr.K.Karunakaran, former Chief Minister of Kerala, Mr.Kurian could materialize a never before an idea of building an international airport with a public-private partnership. He was responsible for the entire project from conception to making the company a runaway success.

(iii) Stats to show CIAL Performance in FY18-19. CIAL recorded a cumulative annual growth rate of nearly 20% in the initial 8 years and thereafter at 12% with annual passenger traffic touching 7.7 million in 2015-16.  The airport handled 8.9 million passengers during 2016-17 and the weekly aircraft movements stand around 1200. For the first time in its history, the passenger volume for a single financial year (2017-18) touched 1 cr on 28th March 2018. In FY18-19, the CIAL has once again crossed the passenger volume of 1 cr. The number of Aircraft movement has also increased to 71,871 as compared to  69,665 last year.

(iv) Kochi in Kerala is witnessing unprecedented growth. Kochi has become the business hub of Kerala and is witnessing a number of mega projects like LNG terminal, International Cargo Container Terminal, etc. Studies in the tourism sector showed an annual growth of 7% in foreign tourists and 9% in domestic tourists. Kerala Government’s Vision 2025 sets its targets.

 Business Model of Cochin International

Cochin International Airport has five subsidiaries. Let us see the purpose of forming these and what business they are doing apart from maintaining and running an airport which is done through Cochin International Airport Limited.

1. Cochin International Aviation Services Limited: It does the work of maintenance of Aircraft, Repair and Overhaul Services and it is also engaged in Aviation training.  CISL currently taking Line Maintenance Services for the international flights running from CIAL.

2. Air Kerala International Services Limited: The primary objective of forming this subsidiary is to make international low-cost airlines for the Keralites who are living in the Middle-East.

3.CIAL Infrastructure Limited: It is formed to exploit the opportunities in Power and Infrastructure sectors. CIL has already commissioned 29.14  MW solar power station at Cochin International Airport and with the growing demand at the airport, the CIL has already augmented the capacity from 29.14 MWp to 40 MWp.

4. CIAL Duty-Free and Retail Service Limited:  It is a wholly-owned public limited company of CIAL. The company is formed in 01.03.2016 to tap the business of Duty-free and Travel Retail business.

5. Kerala Waterways and Infrastructures Limited :The company is formed on 03.10.2017 jointly by Govt. of Kerala and CIAL. It is formed with the objective of making an inland waterway between Kovalam to Bakel. The project will be developed in 3 phases, the first phase will be completed in May 2020 while the second phase will be completed by 2022 and the third phase will be completed by 2025. It will enable the movement of cargo through the waterway.

Business Performance of Cochin International Airport in FY22

1. In FY21-22, Cochin International Airport has clocked a revenue of 525 Crores up from 269 Crores in Fy21.

2. In Fy22, Cochin International Airport has handled 47 lacs passengers and became the third largest airport in the country in the international sector.

3.  In Fy22, the overall aircraft and passenger movements had been increased by 60.06% & 92.66% respectively.

4. Cochin International Airport is one of the few airports in the country where all the aircraft parking bays are equipped with hydrant fuelling system, and the fuel input from the refinery to fuel storage yard is connected through an underground pipeline. This ensure quicker refiling and turnaround time for aircrafts.

5. The geographical location of Cochin International Airport, midpoint of East West Corridor connecting the Middle - East countries (UAE, Bahrain, Kuwait etc.) with the Far East countries (like Malaysia, Singapore, Indonesia etc.) is suitable for the fuel stopover business.

6. In Fy22, total passengers flies from Cochin International Airport are 47 lacs up from 24 Lacs last year.

7. International cargo movement has increased from 35k in Fy21 to 46k in Fy22. Domestic cargo movement has increased from 10k in Fy21 to 13k in Fy22. 

CIAL Unlisted Share Financial Results Overview of FY24

Revenue and Profitability

CIAL has demonstrated an outstanding performance in FY24. The revenue from operations increased from ₹939 crores in FY23 to ₹1,158 crores in FY24, reflecting a robust growth rate. The company also improved its EBITDA margins, clocking in at 62% compared to 59.9% in the previous year. This improvement underscores the efficiency and profitability of the airport’s operations. Furthermore, the Profit After Tax (PAT) from operations has seen a significant increase, rising from ₹292 crores in FY23 to ₹447 crores in FY24.

Understanding CIAL’s Business Model

When analyzing an airport's business, it is essential to distinguish between two primary revenue streams: aeronautical and non-aeronautical revenues.

a) Aeronautical Revenue

Aeronautical revenue is derived from the core operations of the airport. This includes:

• User Development Fees (UDF): A fee paid by passengers for using the airport, which constitutes around 30% of CIAL’s total revenue in FY24.
  
  
• Landing Fees: Charged to airlines for landing their aircraft at the airport. This revenue was 160 cr.
  
  
• Income from CUTE (Common Use Terminal Equipment) and X-ray Screening: Approximately ₹100 crores.
  
  
• Cargo Operations: Contributing around ₹43 crores.

Overall, about 50% of CIAL's total revenue comes from aeronautical sources.

b) Non-Aeronautical Revenue

Non-aeronautical revenue is generated from various commercial activities at the airport, including:

• Retail and Leasing: Revenue from leasing retail spaces within the airport, which brought in approximately ₹200 crores in FY24.
  
  
• Solar Power Generation: As the world’s first fully solar-powered airport, CIAL earns around ₹10 crores from selling solar-generated electricity.
  
  
• Other Services: Income from the Trade Fair Centre, Golf Course, and related facilities, amounting to approximately ₹6 crores.
  
  
• Duty-Free Sales: A significant contributor, with around ₹271 crores in FY24.
  
  
• Aircraft Maintenance and Training Services: Another revenue stream for CIAL.

This diversified revenue mix highlights CIAL's strong business model, balancing stable aeronautical income with growing non-aeronautical earnings.

Growth Prospects for CIAL

a) Volume-Based Growth

For any airport, growth can come from two main avenues. The first is volume-based growth, which involves expanding the airport’s capacity to handle more planes and passengers. CIAL is currently expanding its T3 terminal, which will increase capacity. However, this type of growth is inherently limited by the physical capacity of the airport.

b) Inflation-Based Growth

The second avenue for growth is through inflation-based revenue increases, where the airport increases the charges for services like UDF and landing fees. This method ensures steady growth, though it eventually plateaus as there is a limit to how much fees can be raised without affecting demand.

c) Premium Services and Diversification

To sustain long-term growth, CIAL is also focusing on offering premium services. The development of a five-star hotel in partnership with Taj is a strategic move to cater to high-end travelers. Furthermore, despite the challenges in passenger and aircraft movement growth (which remained relatively flat from FY19 to FY24), CIAL has been able to sustain revenue growth through these premium services and diversification into other areas like solar power and duty-free sales.

d) Future Growth Strategy

For CIAL to maintain and accelerate its growth trajectory, it may need to bid for new airport projects, similar to how the government privatized six airports by handing them over to Adani in 2019-20. CIAL had participated in these bids but was not awarded any airports. Expanding into managing more airports could be a crucial next step for CIAL’s growth.

Valuation of CIAL Unlisted Share Comparison

At its current market capitalization of approximately ₹21,000 crores and with a PAT of around ₹447 crores, CIAL is trading at a P/E ratio of 46x. To put this in perspective, Bangalore Airport, one of India’s most profitable airports, had a PAT of approximately ₹500 crores in FY23 and is valued between ₹35,000 to ₹40,000 crores, as per market reports.

Conclusion

CIAL stands out as a highly profitable and efficiently managed airport with a strong business model. The company’s EBITDA margins of 50-60% are exceptional in the industry, and the growth in air travel in India is expected to drive further revenue increases. However, for CIAL to continue on its growth path, it will need to expand its operations, potentially by acquiring new airports or further diversifying its service offerings.

The current valuation suggests that CIAL is an attractive investment, particularly given the high profitability and growth prospects in India’s aviation sector. As per capita income in India increases, more people will opt for air travel, benefiting CIAL and its investors.