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    What India should do to make its regional airports more viable

    What India should do to make its regional airports more viable

    What India should do to make its regional airports more viable
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    By Satyendra Pandey   IST (Updated)

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    The Indian government is yet again making a push towards connecting unserved and underserved airports via the UDAN policy (now in its fourth phase) while preparing for the privatisation of an additional six airports. Even so, the challenge of developing regional airports remains.

    The Indian government is yet again making a push towards connecting unserved and underserved airports via the UDAN policy (now in its fourth phase) while preparing for the privatisation of an additional six airports. Even so, the challenge of developing regional airports remains. The Airports Authority of India has spent over Rs 1,100 crore on this effort yet the facilities and operations at these airports remain woefully inadequate. While the rhetoric is high, traffic levels are low. Viability is suspect. And consequently, airlines are reluctant to include these airports in their networks. What will it take to change this?
    Regional airports are challenged with low traffic volumes
    Historically, a regional airport is one that sees traffic of fewer than one million passengers per year. For India with a total of 449 airports, the majority of airports are in this category. Those with scheduled services sometimes see footfalls of as little as 7,000 passengers. Most regional airports operate at a loss.
    Because traffic is the lifeblood of any airport and revenue generation is mostly linked to traffic, these miniscule traffic volumes effectively mean that smaller airports are challenged to provide an adequate return. By the numbers, estimates for the Airports Authority of India (AAI) indicate that 75 percent of the airports owned by AAI are registering losses – most being regional airports. With the profitable airports being privatised, AAI is set to receive a stable revenue stream which can then be deployed towards developing regional airports. This in addition to the healthy cash-balance that is in excess of $2 billion. Thus indications are that heavy investment into developing small regional airports will likely be a focus area for the future.
    But along with developing infrastructure, there also has to be an effective strategy geared at developing traffic, tourist footfalls and connectivity. On this front, several avenues remain unexplored.
    Developing demand is as important as developing infrastructure
    For regional airports in India, the challenge is compounded because of the nature of demand. Simply put, the demand in smaller towns is still in very early stages and may take a while to build. Further, the current traffic profile is one where metro cities still account for 60-70 percent demand. With increasing urbanisation this will only get more skewed.
    Small regional airports provide an economic boost for the towns they reside in. Yet, when one visits smaller regional airports, the disconnect between the airport development, city planning and demand development is evident. Whether it is the availability of transportation to and from the airport; or adequate hotel capacity; or signage and lighting – these are very basic factors and if overlooked are a deterrent to demand. And the impact is seen in connectivity.
    As smaller cities want connectivity and offer several subsidies and waivers, this doesn’t always fit in with airline plans. Airline network planners evaluate network-risk and regional routes represent a high risk in terms of cash-flow, traffic and network integration. It is no wonder then that when looking to prune networks, the regional routes are usually first on the chopping block. To ensure this does not happen, several steps are necessary – and these essentially have to be taken by the airport.
    Until now, all efforts have been on the supply side and towards reducing costs. Whether it is the UDAN subsidy (which ironically drives up fares on several metro routes because of the funding mechanism) or the waiver of landing and parking charges at small airports or the minimal taxation on Jet fuel -- the fact remains that without stable traffic and stable revenue streams that are delinked from traffic, small airports will continue to see patchy service. Consequently, viability will always be a challenge. And on this front efforts have been lacking. Regional airports have been focused on what stakeholders do rather than getting to how stakeholders think. This is simply not sustainable in the long term.
    Can regional airports generate a positive return on capital?
    Perhaps the biggest challenge regional airports face is providing an adequate return on capital. This is true for both AAI and private operators. Back in 2015, the Ministry of Civil Aviation had an ambitious plan to build up to 100 no-frills airports. The only caveat was that the airports were to earn a return on investments (ROI) of 12 percent. The airports never got built.
    The failure to provide an adequate return on capital can be traced to the business model which has not been adapted. Thus, the airports continue to lose money and are propped up by allocations and subsidies. This need not be the case.
    Driving profitability for regional airports requires a complete rethink on costs and revenues. The two largest cost drivers namely capital expenditure and operating expenditure are often taken as given overlooking several avenues to impact these via innovation and technology. New construction methods including pre-fabricated units, mobile units and traditional materials are yet to be explored. Additionally, new innovative methods of financing, risk-pooling and clustering (as advocated by India in the ICAO 39th General Assembly) can go a long way towards financial viability.
    On the revenue side, there are opportunities that can be leveraged with the core purpose of delinking revenue from traffic flows. These include landside development, parking, 24 X 7 outlets, advertising, hangars, general aviation, training schools and meeting venues. Planners essentially have to look beyond the airport and look at the airport in the broader context. For a small town, the airport can be as much about the community as it is about connectivity.
    India’s prime minister earlier spoke of development via the 5Ts -- tourism, trade, tradition, technology and talent. Indeed a combination of these five can make for the viability of small and regional airports in India.
    Satyendra Pandey is a partner at the research and advisory firm Siyasha: http://www.siyasha.com the former head of strategy at a fast-growing airline. Previously, he was with the Centre for Aviation (CAPA) where he led the advisory and research teams. 
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