An executive of a leading soft drink giant was visibly upset with Lucknow airport. “There is hardly any place to sit, washrooms are dirty, it’s not a happy experience,” he said.
Long queues at check-in counters of Indian airports is a common sight now. Air traffic from non-metro cities in India has multiplied exponentially over the past five years due to a booming middle class and cheap ticket price. A study, conducted by travel portal MakeMyTrip, states about one-fourth of domestic air traffic in India comes from metros while the rest 75 per cent comes from smaller cities.
At present, the Airport Authority of India (AAI) operates 10 of the 126 airports in India. While it handles 30 million passengers a year, the airports often face the problems of overcrowded terminals, teeming crowds at check-in counters and growing flight delays. But the Narendra Modi government wants to attract private players to exploit the commercial opportunity of terminals.
The model that is being used for the privatisation of terminals at Ahmedabad and Jaipur airports is different from the model used for Delhi and Mumbai airports where a bidder was selected based on the highest share of revenue offered to AAI from the gross revenues of the airport. This reduced the scope of return on investment for the developer, leading to an increase in tariff for compensation.
Over the past decade, GMR and GVK, operators of the Delhi and Mumbai airports, respectively, have run up costs in excess of estimates as a clear process was not established for determining the appropriate level of capital expenditure. For instance, the cost of modernising Delhi and Mumbai airports more than doubled to $3 billion each.
Minister of State for Civil Aviation Jayant Sinha calls it a win-win situation. “AAI will earn rent while the private player, which will operate the terminal now has the opportunity to maximise income from the terminal by increasing the service quality of the terminal,” Sinha said.
AAI’s revenue has significantly improved since FY07 as the four private airports (Delhi, Mumbai, Hyderabad and Bangalore) have delivered massive dividend as lease income. For FY17, such income consisted of around 30 per cent of its total revenue. Increase in such revenue will help the operator as it needs more than Rs 3,000 crore to develop unserved airports, as well as to revamp air traffic control towers, runways and passenger terminals.
Infrastructure bottleneck is likely to be a hurdle in India’s booming aviation story as consultancy firm CAPA estimates that 40 largest airports in the country will exceed their capacity in next 10 years.
“AAI has strong capabilities in airport development and operations; however its lack of commercial orientation is hurting the economies of key cities, lessons from the PPP experience will need to be factored into future projects,” says a senior AAI official.
Sinha, meanwhile, has drawn up an ambitious plan of doubling India’s airport capacity in next 10 years that will need an investment of around Rs 3 lakh crore, most of which will come from private sector.
The regulations have made it difficult for developers to get adequate returns from operating airports, we need to create an attractive policy framework for global airport developers in India, Sinha told Business Standard in an interview in December.
