Airports: A Holistic approach needed

In order to cater to its significant growth potential, India will need more airports, increased capacity at existing ones and supporting infrastructure, finance and human resources. All this would require progressive policies, decisive action and collaborative approach between the government, industry and the public at large, writes Amber Dubey.

‘Vue de monde’, a French phrase, essentially means the myriad views of the world. Speaking about a country, it is the airports that provide us our views of and access to the rest of the world. International airports pose as gateways to the world while domestic airports act as lifelines to link a country.

Historically, in the inchoate stages of the global aviation industry, airport and air traffic services remained under the control of the state. In many countries, even airlines were under the state control as national flag carriers. With the advent of time and the tide of privatisation, airports and air traffic services got corporatised and became autonomous for financial, economic, political and administrative reasons.

Opportunity

Indian aviation has huge potential. In the middle income group numbering over 300 million people, even if every person takes just one flight per annum, the number of passengers would be 300 million. In 2012, domestic airlines flew around 57 million passengers on domestic flight. Given that many of these passengers are repeat flyers, the number of unique flyers is a small fraction of the potential that exists.

India has over 450 airports and airstrips (both civilian and defence) out of which the state-owned Airports Authority of India (AAI) manages 125 (68 operational airports, 26 civil enclaves and 31 non-operational airports). New airports are increasingly being developed through public private partnership (PPP) and this trend is likely to stay given the success of the greenfield airports at Hyderabad and Bangalore and the brownfield ones at Delhi and Mumbai.

The government, of late, has taken a slew of measures to step up the airport infrastructure for the country. AAI has upgraded 35 airports in the country, at an estimated investment of Rs 40,000 crore. On the lines of the successful model of the Central Road Fund, the government is considering setting up the Essential Air Service Fund (EASF) to support the country’s airport infrastructure. This is imperative considering the increase in passengers and cargo traffic.

The increase in civil aviation passenger traffic in the past few years can be attributed to booming Indian economy, growing tourism industry, entry of low cost carriers in the private sector, liberalisation of international bi-lateral agreements etc. In future, the passenger traffic is expected to grow at the same pace despite the current slowdown.

Challenges

Development of new airports in India is being affected by long project delays, land acquisition issues and a challenging regulatory environment. A number of Tier 2 and Tier 3 cities continue to remain outside the bounds of civil aviation due to lack of incentives for private airport operators and airlines.

Despite the strategic location in the South Asia sub-sphere and an increasing role of India in global trade, India’s share of the global air-cargo has remained abysmally low. And the above issues have worsened especially because airport infrastructure has not kept pace with the mentioned growth of traffic nor to boost intra-country connectivity. This has resulted in congestion and inefficient services in major airports, limited landing slots, inadequate parking bays and congestion during peak hours for airlines.

Investing in development of quality infrastructure will have an impact on international competitiveness and economic growth. Aviation is strategic to economic development of a country and airports play a pivotal role in supporting national economic development. This requires faster development of civil aviation infrastructure on public private partnership mode to begin with.

Some work has already started in this direction and there has been a significant augmentation of airport infrastructure in the last five years. Although the passenger traffic is projected to have a negative growth this fiscal, it has had a CAGR of 13 per cent during the last decade. At present, about 70 per cent of this traffic is confined to metros with Delhi and Mumbai airports alone accounting for 45 per cent of passenger traffic. In view of this the government in addition to expanding the airports in the metros is planning to divert traffic to non-metros for distributing growth evenly and to reduce the pressure on metros.

As per the 12th Plan estimates, Indian airports are estimated to handle a throughput of over 209 million domestic and 60 million international passengers by 2017; and cargo in the range of 4.4 million tonne per annum. Hence, significant investments would be required for construction of new airports, expansion and modernisation of existing airports, improvements in multi-modal connectivity (road, metro, ports etc) and better airspace management. Indian airports would require an investment of Rs 65,600 crore during the 12th Plan (2012-17) of which around Rs 50,000 crore is being expected from the private sector.

Way forward

Apart from the government’s support in promoting PPP projects for airport development, recent policy decisions like direct import of ATF, opening of bilateral rights, allowing 49 per cent FDI from global airlines, scrapping of the Aircraft Acquisition Committee (AAC) etc, are welcome. The Civil Aviation Policy being prepared by the Ministry of Civil Aviation (MoCA) is eagerly awaited. Developing investor-friendly climate for creation of infrastructure is a key to a progressive policy stance. Thrust is needed to create a conducive policy and political environment so as to fast-track a number of large airport projects.

The government should ensure continued funding for current and future airport projects. Due to the sharp decline in revenues, many capital projects that were about to start, or were in progress, cannot move forward without federal financial assistance. The government should permit airports to issue advance refunding bonds to take advantage of today’s lower interest rates. Allowing airports to refinance debt and reduce interest cost payments will provide additional financial resources to meet their operational, maintenance and security obligations.

Many domestic as well as international private players are showing interest in the growth and development of the aviation sector. As on date, six airports at Hyderabad, Delhi, Bangalore, Cochin, Kannur and Mumbai have been undertaken on PPP mode with a total investment of Rs 20,041 crore. To achieve India’s ambitious targets, more airport projects need to be awarded on PPP basis. The infrastructure capacity is one of the most important parameters in determining the operational plan of an airport. This can be affected by operational, economic and environmental factors. These factors may function together, but in majority of the cases only one factor dominates and determines the airport capacity.

Development of infrastructure is crucial both within and around airports. Several improvements in infrastructure such as transit passenger facilities, multi-modal connectivity, free trade warehousing zones, cargo complexes etc, are required in and around Indian airports. Another significant area of development is the quality and output of our aviation training and skill development institutes.

Hence, while development and modernisation of big airports is important, development of no-frills and low-cost airports is also crucial to extend air connectivity to Tier-2 and Tier-3 cities and far flung areas. This will also help grow regional airlines with newer routes coming into picture. It is estimated that nearly 25 greenfield airport projects have been identified for development by various states. A no-frills airport is built at a minimum cost and allows operation of small jets as well as slightly bigger aircraft like Boeing’s B737 or Airbus’ A320. The investment in such an airport ranges from Rs 40 crore to Rs 100 crore typically.

Another area of development can be Merchant Airports. These, to quote the department of economic affairs, are "conceptualised, created and run by private parties with their own resources and without any government funding". Globally, merchant airports have been developed as specialised low-cost airports to serve as cargo centres of major nearby airports. Their prime usage as cargo hubs will in turn provide a thrust to freight handling and international trade.

The private sector is showing huge interest in the merchant airport policy, being prepared by MoCA. Such cargo specific small airports can also be built with a small investment of Rs 200 crore or less. The first greenfield merchant airport is being set up in Durgapur in West Bengal at an estimated project cost of Rs 10,000 crore on a land parcel of 2,300 acre. It is being developed by Bengal Aerotropolis Projects in which Singapore’s Changi Airport International has a 26 per cent stake. Its key focus is on cargo, supply chain, logistics hub with maintenance, repair and night parking facilities.

Private sector participation in airports has given rise to new opportunities. Especially significant is the rise of non-aeronautical revenue sources like duty-free shops, food and beverage sales, space rentals etc. High traffic growth not only generates higher aeronautical revenues, but also drives non-aeronautical income higher with more passengers spending on airport products and services. International airports tend to have a larger percentage contribution of non-aeronautical revenues. As per data from International Civil Aviation Organization (ICAO), revenue from non-aeronautical sources has risen from 30 per cent of total revenue to almost 60 per cent.

In summary, in order to cater to its significant growth potential, India will need more airports, increased capacity at existing ones and supporting infrastructure, finance and human resources. All this would require progressive policies, decisive action and collaborative approach between the government, industry and the public at large.