Last month Prime Minister Narendra Modi laid the foundation stone for an international airport at Jewar, Noida, (capacity 12 million passengers), being built at cost over ₹10,000 crore. Full page advertisements in major newspapers, proclaimed it as a dawn of new Uttar Pradesh.
The airport may be completed, just in time for the 2024 Lok Sabha elections. Chipi airport in Maharashtra’s Sindhudurg was inaugurated in October 2021, after a long delay of more than 20 years. Two months, since its opening, only one Air India flight has been operating to that airport.
The airport is the most stable part of the aviation value chain. As per DGCA, there are 206 domestic airports in India. According to earnings data for airports, their collective losses were ₹2,882.74 crore in FY2021, (loss of ₹465.91 crore in FY19) reflecting the impact of the Covid-19 pandemic.
Break even factor for airports
Airlines in India, typically need more than 80 per cent seat factor to break even on cash costs. Regional airport operations can be a profitable business, only for more than three million passengers, as per a global study. Only seven metro airports in India have a passenger carriage of more than three million. It is possible that the break even factor in India could be lower up to one million per year. In spite of higher passenger numbers, the four metro airports — Delhi, Mumbai, Bengaluru and Hyderabad, — are making huge losses due to high, inflated costs.
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Revenue sources
Airports typically earn 80 per cent of their revenues from operating airlines by charging landing, parking fees and navigation charges. These fees are regulated by IATA and are called as aeronautical revenues can potentially generate non-aeronautical revenues for airports through rent of duty free shops, advertisements for brands like luxury cars, etc.
However these are subject to passenger footfalls of more than one million per year. The government came up with UDF charges, to be paid by passengers, to increase airports’ revenues. In spite of that, their fortunes have not changed.
If the top airports in India cannot be profitable, it follows that the airports in smaller cities too would be in loss and such losses are sustained by Indian tax payers. Major airports like Delhi and Mumbai saw their passengers drop from 30-40 million to 20-15 million. So one can imagine what will be the state of affairs at smaller airports
Privatisation of airports
The Adani Group won bids for airports in Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati and Thiruvananthapuram through a competitive bidding process announced in 2019. The group also operates Mumbai airport that it bought from the GVK Group. The board of the Airports Authority of India has given approval to privatise 13 more airports, which includes six major airports — Bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, Raipur — along with seven smaller airports.
Putting the cart before the horse
Prime Minister Modi started the UDAN scheme under which many airports were built in tier II and III cities. Public funding in the form of subsidy was given to regional airlines to operate flights from tier II and III cities. However, without adequate traffic, the private regional airlines stopped operating flights. Most of the airlines, in spite of subsidy have gone bankrupt. Airports, unlike airlines do not go bankrupt but certainly become non functional if airlines do not operate a minimum number of flights.
Growth factors
Growth in ‘Domestic air trips per capita’ have a clear proportional relationship with growth in countries’ GDP per capita.
As result of Covid, India’s domestic air market shrank from by 55 per cent. All airports saw their traffic shrink by an equal proportion. As such there is no urgent need to build another airport in Panvel, Navi Mumbai.
The present airport at Sahar, with terminal T1 at Santacruz, can handle the reduced passenger carriage for next 3-4 years. The political bickering between the State government and the Centre, change of ownership of MIAL from GVK to Adani group, add to the uncertainty for building new airport for Mumbai near Panvel, Navi Mumbai.
PM’s vision
“Common man wearing Hawaii chappal must travel by air,” declared PM Modi Thus began the UDAN programme to subsidise flights to smaller cities of India As per DGCA, 41 regional airports were developed.
Lured by it, many regional airlines inspired by Air Deccan began operations, under subsidy from UDAN, only to become bankrupt once again. PM Modi’s utopian statements of bringing down cost of air travel to ₹10 per km, less than road travel, hit an air pocket as the economy slowed down post demonetisation in 2018-19, severely affecting domestic air travel.
The growth in air market came down to less than 5 per cent. The crisis was accentuated due to Covid-19, as demand as well as supply was cut off. Although airport operations are not a business, the goal should not be to generate a loss, paid by tax payers. Even loss making privatised airports (Mumbai, Delhi, Hyderabad, Bengaluru) and the Adani group, which has stake in many airports, have exposure to PSU banks like SBI running into lakhs of crores of rupees.
Forget the politics for taking credit. Ultimately it is the economy that will decide if majority of airports can be profitably sustained in India.
The writer is an aviation consultant based in Bengaluru
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