India is likely to be the fastest growing aviation market in the world in the next 20 years. Thus, there is a need to adopt a new proactive mindset which does not wait for current infrastructure to become saturated before planning for expansion, but instead starts to anticipate future requirements ahead of time, writes Rai Umraopati Ray.
Fathom this: Three of India's international airports have been ranked amongst the world's best terminals amongst their respective categories. It's an improbable result for a country usually berated for poor infrastructure. In a study last year, analysts at the National Council of Applied Economic Research estimated that Delhi airport's operations contributed 0.5 per cent of the national GDP, Rs 294.7 billion, in the 2009-10 year. That includes the effects of additional tourism, investment, airport services, air transport and multiplier effects. By 2020, the airport's contribution to GDP is expected to rise to Rs 909.5 billion.
Air transport in India has witnessed enormous growth in the recent past. During the last 10 years, compounded annual growth rate (CAGR) of passenger traffic has been approximately 15 per cent. A key trend in the business model of the Indian carriers in the domestic operations is that the domestic traffic is rapidly shifting to Low Cost Carriers (LCC). From a level of about one per cent in 2003-04, the market share of LCC including the LCC arm of full service carriers is today exceeding 70 per cent of the total domestic traffic.
India is likely to be the fastest growing aviation market in the world in the next 20 years. Estimates suggest that the domestic air traffic will touch 160-180 million passengers per annum in the next 10 years and the international traffic will exceed 80 million passengers per annum from the current level of 60 million domestic and 40 million international passengers respectively. According to International Air Transport Association's (IATA) Airline Industry Forecast 2012-2016, India's domestic air travel market would be among the top five globally, experiencing the second highest growth rate.
Union Civil Aviation Minister Ajit Singh says, "India is likely to become the third largest aviation market handling 336 million domestic and 85 million international passengers with projected investment to the tune of $120 billion. Indian aviation industry has been instrumental in the overall economic development of the country. Keeping pace with the government policy, the Airports Authority of India (AAI) has also completed the expansion and upgradation of two metro airports at Kolkata and Chennai and has undertaken the development of 35 selected non-metro airports. The government would like the AAI to run these airports including metro airports at Kolkata and Chennai by engaging professional airport operators on the management contract through a global competitive bidding process. Further accelerating the modernisation and development process, Indian Government envisages an investment of $12.1 billion at Indian airports under the 12th Five Year Plan, of which a contribution of about $9.3 billion is expected from the private sector."
He further informs, "To make the growth in this sector equitable and inclusive, my top priority is to provide connectivity to these areas. Apart from the development of low-frill airports and modification of Route Dispersal Guidelines, the government is in the process of formulation of a policy for promotion of regional and remote area connectivity in India incentivising the Indian carriers to operate on these routes including code sharing and seat credit mechanism."
According to the FICCI-PwC report titled 'Indian Aviation: Spreading its Wings', a strong market growth rate coupled with infrastructure expansion will help get the sector back on its feet as the economy recovers. The report also predicts that this will be a good time for global players to enter India and explore the potential of a large, under-served market.
The government has taken a number of measures to step up the airport infrastructure for the country. It has envisaged a modernisation plan with a view to modernise 35 non-metro airports. On the lines of the successful model of the Central Road Fund, the government is considering setting up the Essential Air Service Fund to support the country's airport infrastructure.
The Ministry of Civil Aviation has mandated that building/restructuring of airports be with a time-horizon of 50 to 100 years, in terms of airport life-span and durability. While these initiatives taken by the government would surely yield positive results over a period of time, the government needs to identify the concern areas of the airport infrastructure.
Expansion and upgradation of airports
According to the year-end review of the Ministry of Civil Aviation for the year 2012, at present five major airports are being operationalised under PPP mode at New Delhi, Mumbai, Bangalore, Hyderabad and Cochin. The new Terminal Building is under construction at Mumbai airport with Phase I of it for international operations likely to be ready by August 2013, while Phase II for domestic operations will be ready by August 2014. The existing greenfield airport at Bangalore is undergoing Phase-II expansion to meet the growing capacity demand. AAI has undertaken expansion and upgradation of airports at Kolkata and Chennai. The Government of India has also approved 15 more airports under the Greenfield Airports Policy being developed, majority under PPP mode. AAI is upgrading and modernising airport infrastructure at Chennai, Kolkata and select non-metro airports in the country.
AAI has taken a number of initiatives to upgrade airport and airspace infrastructure to cater to the continued growth in air traffic with enhanced safety and efficiency. AAI as Air Navigation Service Provider, responsible for provision of Air Navigation Services (ANS) in the delegated airspace, has embarked upon ANS infrastructure upgradation strategy with the objective of ensuring safety, efficiency, cost-effectiveness of aircraft operations with environmental benefits on a long-term and sustainable basis. The comprehensive strategy has been to transition from voice to data-link, transition from ground-based navigation to satellite-based navigation, augmentation of Radar surveillance, implementation of ATM Automation and enhancement in ATM procedures.
AAI has installed 66 instrument landing systems and 93 VORDME which provide navigational guidance to aircraft. In addition, Satellite Based Navigation System (SBAS) called GPS Aided Geo Augmented Navigation (GAGAN) system is being jointly developed and implemented by AAI and Indian Space Research Organisation (ISRO). The GAGAN is designed to provide the improved accuracy, availability, and integrity necessary to enable users to rely on GPS for all phases of flight, from en route through approach for all qualified airports within the GAGAN service volume. GAGAN will also provide increased positional accuracy of aircraft thereby permitting enhanced safety and operational efficiency. The system will be commissioned by June 2013. India is the fourth country in the world, after the US, Japan and Europe to take up the challenge of establishing the regional SBAS Navigation System which will redefine the navigation over Indian airspace and other states falling in the footprint of GAGAN.
In a recent report, CAPA has found that India is under-prepared for the growth challenges ahead and will need to plan for massive investment of up to $40 billion in airport development by 2025, including the construction of up to 50 greenfield airports. Overall investment requirements in airport infrastructure are significantly underestimated. According to the report, land scarcity will be the major challenge for airport development in India in the coming years. India is already facing a shortage of land, particularly in the larger towns and cities, and this issue will only intensify with the increase in urbanisation.
McKinsey estimates that India's urban population will grow from 20 per cent of the total in 1991 to 37 per cent by 2025. By 2030 India is expected to have 55 cities with a population of more than one million. Avers VP Agrawal, Chairman, AAI, "Availability of land remains a major problem as airports require large piece of land because of the safety norms and the sheer nature of it. We have been requesting state governments to help us to acquire land for airports. Building an airport is a very capital intensive exercise, which do not give any economic returns for next 7-8 years. Even when the states provide land, these airports are not going to earn any profit for next few years. This is just to provide connectivity and allowing industrial growth in that city."
According to him, there will be more and more travellers, who would be availing, air services. "At present, there are around 85 airports; I feel India will need 200 more airports to meet the rise in the demand. The only way to meet the rise in the demand would be possible if we develop infrastructure on 457 existing airports or air strips in the country if states join hands with AAI. There is a huge opportunity but it will require huge capital investments also."
A number of experts are of the view that developing airports is an important objective, but this should be carried out within the framework of a national aviation master plan - integrated into an overall national transportation plan - which identifies clear economic reasons for building a new airport. Several state governments have encouraged the development of small airports in Tier 3 cities. The objective of providing connectivity may be positive but if the project does not have a sound business case this represents an inappropriate use of scarce capital. Some private regional airport operators are already understood to be facing challenges with the projects they have undertaken.
Thus there is need for innovative long-term planning; probably a new regional airline policy is required to drive traffic to smaller centres. For instance, Cochin International Airport (CIAL) was the very first PPP airport project in India, opening in 1999, seven years before Delhi and Mumbai Airport were awarded to private joint venture operators. CIAL was an initiative of the Government of Kerala, and a large proportion of the initial funding was raised from retail investors. It has been a profitable airport, which has focused on developing non-aeronautical revenues as well as controlling capital expenditure. Cochin Airport serves as a valuable role model for other airport projects in India as it takes care of several issues like funding, profitability etc. There is a need to adopt a new proactive mindset which does not wait for current infrastructure to become saturated before planning for expansion, but instead starts to anticipate future requirements ahead of time.
The positive aspect is that government is not only aware but is working towards bridging the gap between potential and current status in terms of airstrips per capita, which, for India was much lower even compared to developing countries like Brazil and China.
Political will and favourable policies needed
India has constantly seen an increase in the passenger volumes over the past few years. India is poised to create a better airport infrastructure but whether it will do so or not is the question. Political will and favourable policies are required to make this happen. There may be a need to devise technologies for provision of cheaper airport infrastructure at smaller tier-II and Tier-III towns where there is enormous capacity for expansion of air traffic provided the fares are reasonable. Innovations into form of better connectivity to airports, smaller safer quicker aircrafts can transform India's airport infrastructure. Innovative policies can define better ways to manage the regional airports which in turn can push the infrastructure development costs lower. Flexible use of air space, joint management of civil and defence airspace etc, can help to save fuel. Apart from the environmental benefits, it is all likely to make air travel cheaper. This may lead to increase in air traffic and hence more and better infrastructure. Similarly, GAGAN can eliminate the need of ILS etc at smaller airports, and can make the airport infrastructure cheaper at these places. This may also help in opening of more airports in tier-II and Tier-III towns. Proper handling facilities and logistics should be carefully thought out during the master planning stages.
Public-Private Partnership (PPP) can be a model solution for improvement in airside and terminal infra in major as well as smaller airports. However, the proposition has to be beneficial for the private investor. The risk has to be shared between the public and the private sector. To encourage private participation the cost pass-through to the passengers should be minimal due to high price elasticity of demand at such places. Viability is a major issue at smaller airports. The demand has to be generated through additional ways to attract passengers. The government can support this through suitable land use policies to allow commercial utilisation of the space available around the airport. This can be further extended to develop the regional economy around the airport using the aerotropolis planning principles. The provision of viability gap funding VGF) by the government is another measure which can attract private participation - Arun Chandran, Director - Aviation AAPSA (Asia, Australia-Pacific, Southern Africa) & Director - Project Management (India), Parsons Brinckerhoff