The past few years have been quite eventful for the airport sector. India’s emergence as the fastest growing aviation market is visible from the growth in traffic volumes. As part of its Vision for 2040, the government has rolled out ambitious plans for capacity augmentation of airport infrastructure. The Regional Connectivity Scheme (RCS) too has largely met with success and lent support to the Ministry of Civil Aviation’s (MoCA) Flying for All vision. On the policy front, while the National Civil Aviation Policy [NCAP], 2016, undoubtedly brought optimism and laid the groundwork for sound airport infrastructure development, the new Cargo Policy has recently been launched to tap the potential of the cargo segment. The industry is of the view that the sector is in urgent need for an institutional reboot. While drafting ambitious plans holds value, actual implementation can only happen once a sound institutional set-up is in place.
From 2013-14 to 2018-19, air passenger traffic grew at a compound annual growth rate (CAGR) of over 15 per cent. The market has more than doubled in size in the past six years from 169 million in 2013-14 to 344.7 million in 2018-19. The growth is being primarily led by the domestic passenger segment, which grew from 122.4 million in 2013-14 to 275.22 million in 2018-19. In the past six years, airfreight traffic grew at a CAGR of 9.42 per cent, reaching 3.56 million tonnes (mt) in 2018-19. Of the total traffic in 2018-19, international and domestic traffic accounted for shares of 62 per cent and 38 per cent respectively. The numbers dwindled during the April-July period of 2019-20 with a marginal decline of 0.3 per cent in passenger traffic and a more pronounced fall of about 4.6 per cent in cargo traffic.
Tariff fixation has always been an area of concern, especially for privately operated airports. On August 2, 2019, Parliament passed the Airports Economic Regulatory Authority [AERA] Amendment Bill, 2019, which will enable the government to bid out private airport projects on the basis of predetermined tariffs. Further, the threshold for an airport to be classified as a major airport has been raised from the current passenger handling capacity of 1.5 million passengers per annum (mppa) to 3.5 mppa, to reduce the ambit of AERA’s authority. Meanwhile, in a bid to promote inflow of foreign investment, 100 per cent foreign direct investment in brownfield projects has been permitted. A new Cargo Policy has also been launched to maximise the potential of the cargo segment.
Enhanced role of the private sector to fuel the privatisation momentum
The airport sector has attracted considerable interest from private players. While GMR and GVK dominate the share of the private sector in the sector, several other players, both domestic and global, have shown increasing interest as well. Big players such as the Adani Group and the Tata Group have marked their entry into the sector with substantial investments lined up. Recently, lenders too have been quite vocal about their optimism with respect to funding airport projects, as they regard airports as the safest to lend to among infrastructure sectors.
Airport privatisation, which has been one of the key priority areas of the MoCA, has been able to attract a number of players. In December 2018, the government put up six Airports Authority of India (AAI)-owned airports – Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru – for privatisation. In January 2019, bids for leasing out the six airports on a public-private partnership (PPP) basis were invited. Thereafter, in February 2019, Adani Enterprises Limited emerged as the highest bidder. In July 2019, the cabinet approved the proposal for leasing out three of the airports, namely, Ahmedabad, Lucknow and Mangaluru, to Adani Enterprises Limited.
In a noteworthy move, the Tata Group checked into the airport business by picking up a 19.7 per cent stake in GMR Airports Limited (GAL). The Tata Group, along with GIC and SSG Capital Management, will invest a total of Rs 80 billion in GAL. The proposed investment comprises Rs 10 billion equity infusion in GAL and Rs 70 billion towards purchase of GAL’s equity shares from GMR Infrastructure Limited and its subsidiaries.
Connecting the dots
Launch of the RCS under the NCAP, 2016, was one of the most path-breaking initiatives in the sector. Under the first three rounds of the scheme, 194 routes have been awarded. The scheme also has the provision for connecting six water aerodromes, a first such initiative in the country. The success of UDAN [Ude Desh ka Aam Nagrik] 3 has come on the back of strong performance of UDAN 1 and 2. The connectivity proposed under UDAN 1 has commenced and is stable and the focus is now on expediting connectivity under UDAN 2. In August 2018, the government also launched UDAN International.
Capacity shortage: An impending challenge
Currently, Indian airports have a capacity of over 356 million passengers per annum (mppa), of which joint venture (JV) airports at Bengaluru, Cochin, Delhi, Hyderabad, Mumbai and Nagpur comprise around 178.57 mppa capacity. Most airports (JV-operated and AAI-operated) have either reached saturation levels or are expected to reach optimal capacity within a decade.
Most of the airports’ passenger potential will saturate in 15 years and India will have to practically double the airport count from over 100 to 200. Cities such as Delhi and Mumbai where second airports have already been planned will also be saturated by 2040 and will demand a third airport. Overall, the expected growth needs to be supported by augmentation of both airside and city-side capacity, while putting the existing capacity to efficient use.
That said, timely creation of new capacity as well as augmentation of existing capacity through increasing productivity is the need of the hour. There are significant inter-airport variations in terms of capacity. Non-metro airports such as Kanpur, Nagpur and Patna are witnessing utilisation rates of over 300 per cent, while others like Aurangabad, Bhopal and Jamnagar have not even reached 30 per cent of their capacities. With regard to metro airports, the Hyderabad and Mumbai airports are over or fully utilised with rates as high as 134 per cent and 104 per cent respectively, while Kolkata airport is underutilised with a utilisation rate of 84 per cent.
Going forward, several cities are expected to have multiple airports. Some of these are Navi Mumbai airport (Maharashtra), Noida international airport (Jewar), Mopa airport (Goa), Purandar airport (Pune), Bhogapuram airport (Visakhapatnam), Dholera airport (Ahmedabad) and Hirasar airport (Rajkot). In the private sector too, upgradation and expansion is in the offing for the Delhi, Bengaluru and Hyderabad airports over the next five years. New capacity has also been created with the commissioning/ completion of the Kannur, Sindhudurg, Pakyong, Jharsuguda and Orvakal airports. Meanwhile, AAI has augmented capacity at several non-metro airports. Recently, new terminal buildings were inaugurated at the Vadodara, Jammu, Vijayawada and Cochin airports. Plans are also in place to undertake development works at the Lucknow, Deoghar, Rajkot and Allahabad airports.
Focus on technology and efficient passenger facilitation
Enhancing passenger experience is another focus area. In October 2018, the ministry released the policy on biometrics-based digital processing of passengers at airports – Digi Yatra. Upgraded versions of the AirSewa 2.0 web portal and mobile app have also been launched. The government has also unveiled a drone policy to ensure that drones are manufactured in the country. Technologies such as artificial intelligence and big data should be leveraged to improve the flying ecosystem. To enhance passenger experience, the government has envisaged provision of in-flight Wi-Fi facilities.
In this regard, the Department of Telecommunications (DoT) has released the rules for in-flight communication services, Flight and Maritime Connectivity Rules, 2018, which will come into effect once they are published in the official gazette of India.
There is growing impetus on sustainability at airports. AAI as well as private developers are working towards managing their energy needs through the use of solar power. Cochin, Delhi, Hyderabad and Chandigarh airports are some of the airports producing solar energy.
Towards future-ready airports
India will continue to need massive investments for construction and operations of airports. Lumpiness of investments, tariff uncertainty, low interest by foreign and domestic investors, lengthy legal disputes, long bidding processes, challenges in fundraising, revenue leakage risk in PPP airports and suboptimal exploitation of real estate are some of the pain points.
Nonetheless, the Indian aviation sector is riding on a double-digit growth trajectory,
driven primarily by the domestic segment. While the numbers dropped a bit in 2018-19, the expected recovery will certainly result in maintaining double-digit growth. As per CAPA estimates, airport passenger numbers could exceed 1 billion in the next 10 years. The fixation of 30 per cent hybrid till as the norm for tariff determination had been a long-pending demand of private airport operators. With this in place, the sector may witness greater investor interest. Going forward, policy execution will remain key. Creation of implementation task forces; roll-out of rules, procedures and amendments; close cooperation between government and industry; and process-driven implementation should be focused on.
Regional connectivity has emerged as a boon for the sector and the government now plans to focus on remote connectivity. In the near to medium term, the operational airports will continue to change hands from the government to the private sector. In recent times, technology has emerged as a significant disruptor and will continue to facilitate the creation of sustainable airport infrastructure.
As per India Infrastructure Research, while the opportunity is huge on paper, the on-ground execution of plans will require an advanced development planning process. Airport and airside capacity constraints, excessive regulatory oversight and skill shortages are issues which will continue to impede future growth.