The erstwhile sluggishly growing airport sector has managed to witness double-digit traffic growth since 2014-15. In line with the increased demand for air travel, capacity creation is also on the rise. The Airports Authority of India (AAI) has upgraded a number of its airports. Meanwhile, work on several greenfield airports has also been completed. The government’s ambitious plans to provide air connectivity to unserved and underserved destinations have also met with success. Although challenges such as acquisition of land, fluctuations in fuel price, and depreciation of the rupee continue to pose a risk, nonetheless, the outlook for the sector looks promising.
Policy push
In order to bring more organisational efficiency and clarity in tariff fixation, in December 2017, the cabinet approved the AERA (Amendment) Bill, 2017, aimed at changing the definition of “major airports” and helping the Airports Economic Regulatory Authority of India (AERA) function more efficiently. Earlier, major airports with an annual throughput of 1.5 million passengers were under the purview of AERA. Now, with the amendment, the definition of major airports will be changed to any aerodrome which has or is designated to have an annual passenger capacity of 3.5 million passengers. The amendment bill will also allow the authority to fix aircraft landing and parking fees prior to the commencement of the bidding process for airports, which are proposed to be developed on a public-private partnership (PPP) basis.
RCS: A potential game changer
So far, two rounds of bidding have already been completed and a total of 453 routes have been awarded. However, operations have commenced only on about 15 per cent of these routes. Flight operations have commenced from 16 Regional Connectivity Scheme (RCS) airports, while services are yet to commence from 11 operational RCS airports. Besides, as of July 2018, 11 RCS airports are under upgradation, slot allocation, etc.
The government has also unveiled the draft International Air Connectivity scheme, an extension of the RCS, which will cover international destinations. The scheme envisages increasing the international ticketing to 200 million by 2027. It is designed for state governments keen to promote air connectivity on international routes identified by them and for which they are willing to provide a subsidy to the airlines.
The Maharashtra government is planning to draft a comprehensive state civil aviation policy for 2018-27 to increase regional connectivity. The policy is expected to be drafted in 2018. In October 2017, the Uttar Pradesh government announced its Civil Aviation Promotion Policy, 2017, to facilitate the integrated development of underserved airports by providing air connectivity through new routes under the RCS.
Airline performance
Most of the airlines are reeling under pressure with profits eroding due to increasing fuel prices and the depreciating rupee. Jet Airways is facing a financial crisis for which it is exploring funding avenues. Meanwhile, the government’s plan to privatise Air India did not fructify due to lack of interest from bidders owing to the huge amount of debt. In a major development, domestic airlines changed their existing norms of Rs 3,000 cancellation fee being levied on passengers for cancelling their flights. As per the new norms, passengers will now have to pay Rs 3,000 or the base fare plus fuel surcharge, whichever is lower. However, in case domestic passengers have paid a base fare and fuel surcharge which is more than Rs 3,000, they will pay only a Rs 3,000 cancellation fee.
Strong financial backing
In Budget 2018-19, the civil aviation sector received an allocation of Rs 66.03 billion, which is almost 2.5 times the allocation of Rs 27.1 billion for the previous fiscal year (2017-18). Besides, the allocation for the RCS or UDAN – Ude Desh ka Aam Nagrik – has been increased significantly to Rs 10.14 billion for 2018-19, against Rs 2 billion allocated in 2017-18.
New transaction structure for greenfield airports
In the 2018-19 budget, the government proposed a new scheme called the NextGen Airports for Bharat (NABH) Nirman to expand the existing airport capacity by over five times so as to handle a billion passengers annually. Under the scheme, 100 airports will be established in 15 years at an estimated investment of Rs 4 trillion, of which sizeable investment will come from the private sector.
Under NABH Nirman, the government has proposed a new financial model for developing greenfield airports. As per the new approach, the concession fee given by the airport operator to the concessioning authority will be based on a “per passenger aeronautical model”. At present, the transaction structure for airports, under the joint venture (JV) route, is based on a revenue sharing model. The proposed model concession agreement will be fine-tuned after feedback from industry stakeholders.
In terms of progress under greenfield airport projects, work has finally started on Navi Mumbai and Mopa airports. Construction work on the Kannur international airport and Pakyong airport has been completed. Meanwhile, Jewar airport, to be developed on a public-private partnership basis, has received approval from the central government. The government recently inaugurated a new airport in Jharsuguda which will provide necessary connectivity to Bhubaneswar, Raipur and Ranchi under the RCS.
Traffic trends
In the past five years (2013-14 to 2017-18), air passenger traffic has grown at a compound annual growth rate (CAGR) of 16 per cent, reaching 309 million in 2017-18. Of the total traffic, domestic and international traffic accounted for a share of 79 per cent and 21 per cent respectively. During the period April-July 2018-19, passenger traffic stood at 114 million, an increase of 17.5 per cent over the corresponding period of 2017-18. With regard to the freight segment, from 2013-14 to 2017-18, airfreight traffic grew at a CAGR of 10.3 per cent, reaching 3.36 million tonnes (mt) in 2017-18. Of the total traffic, international and domestic traffic accounted for shares of 64 per cent and 36 per cent respectively. During the period April-July 2018-19, freight traffic stood at 1.19 mt, an increase of 7.6 per cent over the corresponding period of 2017-18. Growth in both passenger and freight traffic continues to be led by the JV airports.
Technological advances
In a bid to enhance passenger experience at airports, AAI has taken an initiative for reducing management friction by removing the requirement for stamping of hand baggage tags at airports, in a phased manner. After the successful implementation of the first two phases, in the third phase, AAI carried out successful trial runs and requisite infrastructure was put in place leading to stamping of hand baggage tags being suspended at four airports – Kozhikode, Coimbatore, Indore and Vadodara – from September 9, 2017 and at two more airports – Bhubaneswar and Bagdogra – from October 5, 2017. Further, another 10 airports – Amritsar, Chandigarh, Pune, Mangaluru, Tiruchirappalli, Ranchi, Dibrugarh, Udaipur, Varanasi and Nagpur – have been identified under Phase IV. Tag-less procedures will be implemented after putting in place the requisite surveillance and monitoring systems at these airports. Currently, the central government is working on Aadhaar-based paperless boarding, DigiYatra. The service is expected to be rolled out soon commencing at Bengaluru, Hyderabad, Kolkata, Varanasi and Vijayawada airports. This digital platform will enable air travellers to complete the boarding process smoothly with the help of their Aadhaar number.
Commercial and real estate development
Airports have started monetising cityside assets to earn an additional stream of non-aeronautical revenue. AAI is in the process of identifying airports for cityside development; techno-feasibility reports, master planning, architectural concepts and business plan studies are already being undertaken. In January 2018, Delhi International Airport Limited awarded the contract to develop a commercial property which will have about 2.5 million square feet of area for leasing to Bharti Realty Limited. In a similar development, Boeing has been awarded the contract to make aircraft components and subsystems in a new facility at Aerospace Park at Devanahalli, Bengaluru. The Boeing facility will be built on 41.7 acres of land allotted in the park.
Outlook
The Indian aviation sector is on a double-digit growth trajectory, driven primarily by the domestic segment. In 2018-19, domestic passenger traffic is expected to grow at 18-20 per cent, while international passenger traffic is expected to grow at 10-12 per cent, though lower than its potential. Most airports have either reached saturation levels or are expected to reach optimal capacity within a decade. Timely creation of new capacity as well as augmentation of existing capacity through increasing productivity is the need of the hour. Contracts need to be made more attractive and profitable for investors. Recent failed attempts with regard to the award of operations and maintenance contracts for Ahmedabad and Jaipur airports as well as divestment of Air India point to the lack of attractive bid offers. Going forward, policy execution will remain key. The setting up of implementation task forces; roll-out of rules, procedures and amendments; close cooperation between the government and industry, and process-driven implementation should be important focus areas.