The air travel boom in India has thrown up a new set of challenges before the country's aviation sector. The airport infrastructure needs to be ramped up on priority for the growth momentum to be sustained in the long term.
In 2010, 51 million passengers travelled by air in India. By December 2016, the figure had grown to 99.88 million passengers, showing an increase of almost 100 per cent. The International Air Transport Association (IATA) expects India to overtake the UK as the world's third largest aviation market by 2026.
In such a scenario, it would be an understatement to say that the aviation sector in India is booming. It is, in fact, clocking an unprecedented explosive growth.
So much so, that experts are now warning of a severe capacity crunch at 30 of the country's major airports. Speaking to INFRASTRUCTURE TODAY, Amber Dubey, Partner and India Head of Aerospace & Defence, KPMG says, 'With passenger traffic growing and new aircraft coming in by the dozens every year, we are fast running out of landing and parking slots, at most major airports, especially during peak hours.'
Let us take a look at what the numbers reveal about our top six airports. In terms of passengers, the Delhi airport leads the pack.
As of March 2017, 55.6 million passengers flew to 129 destinations by 63 airlines. Says Indana Prabhakara Rao, CEO, Delhi International Airport (DIAL), 'Addition of new routes in the domestic and international sectors by major airlines and a steep rise in the flow of transit traffic, has helped Delhi airport emerge as a leading airport hub. Airlines are attracted to Delhi, as we have a large catchment area and, unlike other Indian airports, virtually no constraints as far as accommodating future growth is concerned.'
In the country's financial hub of Mumbai, which lost out to Delhi in 2011 as the country's primary civil aviation hub, 44.7 million passengers travelled to 90 destinations by 47 airlines. In India's IT hub of Bengaluru, the annual passenger traffic stood at 22.2 million, with 62 destinations served by 32 airlines. Chennai airport handled 17.7 million passengers to 56 destinations by 33 airlines. Kolkata had 14.6 million passengers flying to 54 destinations by 26 airlines. In Hyderabad, 14.3 million passengers flew to 50 destinations by 26 airlines.
According to projections shared for the major metro airports by the Centre for Asia Pacific Aviation (CAPA) India with INFRASTRUCTURE TODAY, no peak hour slots are available at Delhi. Terminal 1D is already over-saturated, resulting in serious impact on airline operations and customer experience. With the expansion of the terminal likely to take another couple of years, the process of deciding which airlines will move to T2 has taken more than 12 months, creating development challenges. Airlines like IndiGo and SpiceJet will have their operations split over three terminals at Delhi. Surface access to the airport is likely to be an issue given the growth in vehicular traffic. Unfazed, Rao confidently points out, 'It is interesting to note that in 2010, transit traffic accounted for just 2.3 per cent of all traffic in Delhi and by the end of 2015, this number had risen by 20 per cent. Execution of the expansion works as per the proposed master plan will further enhance the facilities enabling air traffic to grow at a faster pace.'
In Mumbai, the available terminal capacity is around 60 million, but the airport will saturate at 50-52 million passengers due to airside limitations. The airport has complex and restricted operations due to what is effectively a single runway system. Productivity from that runway is already high, with Mumbai achieving 46û50 hourly movements, approaching the global best practice level of 55.
At Bengaluru, the availability of slots is becoming tighter, while congestion is becoming visible in the terminal and on access roads. The second terminal and runway will likely increase the airport's capacity to 40 million passengers. At the Airports Authority of India (AAI)-owned Chennai International Airport, there are plans to increase the airport capacity to 30 million passengers. However, airside constraints mean that the airport will saturate at around 26 million passengers. The displaced threshold for runways 18 to 30 impacts airside efficiency and consequently limits airport capacity. Moreover, only a very few slots are available at the airport. Kolkata airport has parallel runways, but since they are separated by approximately 200 m only, simultaneous operations cannot be conducted, which limits the capacity.
Hyderabad airport was designed for 12 million passengers, but with operational efficiencies this has been increased to 16 million. However, slot availability challenges are emerging. Planned expansion of the terminal will increase capacity to 25 million. The above statistics from CAPA India, therefore, make it amply clear that the country's major airports are indeed stressed.
NCAP 2016: Implement good intent
The federal government released the National Civil Aviation Policy (NCAP) in June 2016. It was the first time in the history of post-Independent India that an integrated policy was announced for the sector. The policy essentially has four main pillars. One, it seeks to make air travel affordable and convenient. Two, it establishes an integrated ecosystem that will lead to significant growth of the sector to promote tourism, employment and balanced regional growth. Three, it enhances regional connectivity through fiscal support and infrastructure development. And, finally, it enhances ease of doing business through deregulation, simplified procedures and e-governance.
Addressing the issue of airport infrastructure, the policy seeks to encourage development of airports by AAI, state governments, the private sector or public-private partnership (PPP). Future tariffs at all airports are proposed to be calculated on a æhybrid till' basis, unless specified otherwise in concession agreements. Aeronautical charges are sought to be cross-subsided through 30 per cent of non-aeronautical revenue. The policy also seeks an increase in non-aeronautical revenue through better utilisation of commercial opportunities of city side land. Moreover, the state-owned AAI will be compensated in case a new greenfield airport is approved in future within a 150-km radius of an existing unsaturated operational AAI airport.
Most civil aviation experts cite the regional connectivity scheme (RCS) as the single biggest achievement of NCAP 2016, as it would eventually result in the expansion of airport capacity in the country's hinterland. In the past few months, the bidding process for second airports at Mumbai, Goa and Visakhapatnam have been completed. Forecasts Dubey, 'Given the overall growth prospects of the sector, funding of airport projects through equity and debt is gradually becoming easier. The NCAP 2016 provisions on open skies and removal of the arbitrary 5/20 rule will show its impact from mid-2018 onwards.'
Although the hybrid till system of tariff determination in NCAP 2016 has revived domestic interest in the airports sector, convincing global investors to put in their money in the airport projects continues to be a challenge. In 2015 itself, foreign firms were permitted 100 per cent investment in brownfield airports. But there has hardly been any noteworthy progress on that front since.
Ashish Tandon, Managing Director, Egis India attributes this to the global headwinds. 'The countries which were called rock solid in terms of funds are now undergoing internal consolidation. The funds are not that freely available. Also, there are lots of pending projects in infrastructure, which are actually making investors to be careful with their money.'
For his part, Dubey partly blames it on AAI's reluctance to lease out its airports to private operators. 'The recent bids for O&M operators for Jaipur and Ahmedabad drew a blank with not a single bidder showing interest despite the high traffic growth. The unprecedented concept of ceding partial control of the said airports to private sector with AAI retaining responsibility for air-side operations and capital investments was a non-starter,' he says. AAI presently controls 125 airports in the country and Dubey feels that the state-owned entity should at least lease out its top-15 airports in order to increase revenues and efficiencies.
Similarly, for reviving PPP projects in the sector, industry insiders stress on the need to encourage development of airports as self-sustainable units. Avers Tandon, 'Every airport needs to have a revenue model that will ensure that it breaks even and makes profits that meet forecasts.ö Making an oblique reference to the challenges faced by the greenfield Durgapur airport project, he adds, 'We have had instances like the airport in West Bengal where there was no clarity on the revenue model. Unless, there is assurance that the government will back these projects with the right environment that assures timely approvals and, yet, gives them autonomy, it will be difficult to enhance PPP in the sector.'
Incidentally, in August this year, the Supreme Court rejected the federal government's appeal against a Delhi High Court order holding as unconstitutional, the exclusion of existing airports, developed under the PPP model, from the benefit of liberalised use of land under NCAP 2016. The policy had barred airports such as Delhi and Mumbai from commercially utilising their land for providing non-aeronautical services such as bank ATMs, hotels, motels or general retail shopping centres.
Fast track GAGAN to enhance regional connectivity
Aviation experts opine that the rollout of GPS Aided Geo Augmented Navigation (GAGAN) needs to be put on the fast track to provide seamless regional connectivity. Jointly developed by the Indian Space Research Organisation (ISRO) and AAI, GAGAN will provide augmentation service for GPS over India, Bay of Bengal, South-East Asia and Middle East and Africa. Considered ten times more precise than GPS and radio navigation aids used for precision landing, it will make airline operations more efficient by increasing fuel savings, direct routes, ease of search and rescue operations, reduced workload of flight crew and air traffic controllers and cost savings due to withdrawal of ground aids.
The system is ready for full optimisation and has obtained an international certification for approach and precision landing operations over the Indian subcontinent. The federal government is soon expected to issue the notification to make it mandatory for new aircraft registered in the country from January 1, 2019. India is the fourth nation in the world to have an inter-operable satellite based augmentation system (SBAS) after US, Europe and Japan. GAGAN is also the first SBAS system in the world to serve the equatorial region. Industry experts also emphasise the need to simultaneously address the acute shortage of trained manpower for deployment in air navigation services.
Maintenance, repair and overhaul: Stepchild of Indian aviation
The Indian Maintenance, Repair and Overhaul (MRO) industry is expected to grow to over $1.5 billion by 2020. However, it is often said that developments in airport infrastructure have not been able to support the growth of the MRO industry. Some go so far as to wryly term it as the 'stepchild of Indian aviation.'
NCAP 2016 acknowledges that though the MRO business of Indian carriers is around Rs 50 billion, 90 per cent of the sum is currently spent outside India. The policy says that the Ministry of Civil Aviation (MoCA) would persuade state governments to make value-added tax (VAT) zero-rated on MRO activities, provide adequate land for service providers at all future airport or heliport projects where the potential for such a service exists. Also, no airport royalty and additional charges on MRO service providers will be levied for a period of five years from the date of approval of the policy.
Yet, MRO is an area where things have not changed much on the ground. Points out Pulak Sen, Founder Secretary General, MRO Association of India, 'Despite the NCAP's chapter on MRO, where it is declared that airport developers should allot space for MROs to set up shop, the operators, both public and private, have not done so. Contrary to the direction, some airport developers do not encourage MROs on their premises.' Additionally, royalty is still charged by airport operators at varied rates, despite the association's efforts to bring it down from 36 to 16 per cent. According to the rules, import of spares for all categories of MRO work is exempt from custom duties. However, the Goods and Services Tax (GST) regime has deeply impacted the MRO industry.
On the import of certain aircraft spares, zero customs duty is levied, but a 5 per cent Integrated Goods and Services Tax (IGST) is additionally charged on all the imports. On the import of paints, varnish and thinners, the import duty is 28 per cent, plus 5 per cent IGST. On the import of other consumables such as adhesives, the import duty is 18 per cent, plus 5 per cent IGST. It is further interesting to note that none of the parts imported are manufactured in India.
Sen recommends that these taxation anomalies need to be addressed on an urgent basis, before any serious harm is done to the Indian MRO business. Hasmukh Adhia, Revenue Secretary in the Ministry of Finance recently admitted that GST on MRO services needs to be reviewed. Sen further adds, 'The government should consider levying a steep GST on airlines who send their aircraft overseas.'
A new directive by the MoCA looks at developing small station MRO stations in far flung areas as part of the regional connectivity scheme.
Are mega airports the way forward for India?
Given the rapid year-on-year (YoY) increase in passenger and aircraft numbers, a section of the aviation industry has suggested that perhaps India could look at developing mega airport projects of the scale that are currently under development in China and Turkey. For instance, the Istanbul New Airport being built in Turkey is proposed to have a capacity for handling 150 million passengers on completion. Similarly, the Beijing New Airport that is under development in China, will have a 100 million passenger capacity.
However, industry experts whose views were sought for this story, are not keen on mega sized airport projects on grounds of both economy and safety. Says Dubey, 'Given the challenges of land acquisition, multi-modal connectivity and high population density in urban agglomerations in India, it may be advisable to have a distributed model of one primary airport and three to four secondary airports in major cities than having mega airports of 100 to 200 million passenger capacity per annum.'
Tandon feels that compared to Turkey and China, India follows a different model of governance, where even the consumption preferences are quite distinct from those of the two countries. He emphatically states, 'Jewar and Navi Mumbai Airports will be an absolute hit if the associated infrastructure is also developed simultaneously. For a country like India, I feel smaller airports at strategic locations will be more effective than large airports in one location.'