Mumbai: The bidding process for the Navi Mumbai international airport, which is expected to open in 2014, will start by August, but the government is yet to decide on how flight traffic will be shared between Mumbai’s old and new airports—an inadequacy that could hurt its prospects of attracting the interest of developers.
Traffic allocation is critical for the viability of a second airport that is being built within a 150km radius of an existing one. It will give developers a sense of the potential of the forthcoming airport.
T.C. Benjamin, Maharashtra’s principal secretary for urban development, admitted that it was important that the traffic allocation be done. “We want either a government mandate on traffic allocation or let the market forces decide. According to our estimate, the airport will break-even if it gets 10 million passengers in the first year,” said Benjamin, who also said that the initial bid document will be released next month.
Whether the government can allocate traffic between the old and the new airports is also unclear.
In New York and Chicago, the airports are owned by the same entity. In London, where the airports are owned by different entities, the airports regulator allocates the traffic.
The Navi Mumbai airport was conceived because the Chhatrapati Shivaji International Airport, run by the GVK group, is expected to reach its peak capacity of 40 million passengers a year by 2013.
The Hyderabad-based company holds the first right of refusal for the development of the proposed airport at Navi Mumbai. If GVK’s bid falls short of the highest bid by up to 10%, it will have the right to revise its offer to match the top bid and operate the Navi Mumbai airport.
“I am not aware of anything the government is doing for the Navi Mumbai project. However, it cannot restrict any traffic as per the OMDA; this has to be market-determined,” said Sanjay Reddy, managing director of Mumbai International Airport Pvt. Ltd and vice-chairman of GVK Industries Ltd.
OMDA is the operations, management and development agreement signed between the airport developer and the government.
Experts disagree. “It can’t be left to market forces since the two airports are not on a level playing field in terms of infrastructure, cost and location,” said Amber Dubey, director of aerospace and defence advisory at KPMG.
In the case of both Hyderabad and Bangalore airports, all the traffic moved from the existing Airports Authority of India airports to the new airports. “This is not the case in Mumbai and Goa, where the existing airports will continue to operate. Absence of traffic allocation may lead to congestion in one airport and under-utilization of the other,” Dubey said.
The Central government approved the setting up of a greenfield international airport at Mopa in Goa, while it has decided not to close down commercial operations at the existing Dabolim airport.
Vikrant Vaze, a post-doctoral research fellow at the Massachusetts Institute of Technology who specializes in operations research and aviation, said that if there is no traffic allocation and airlines are allowed to schedule as many flights as they want at these airports, delays and congestion could reach unacceptable levels.
Vaze explained that most US airports continue to function reasonably well without slot controls because demand does not exceed their capacities. “But at airports where demand significantly exceeds capacity, some form of congestion control is absolutely essential. Administrative slot controls is one possible mechanism for congestion control,” he said. Dividing the available slots at an airport, known as administrative slot controls, across different airlines is a very commonly used strategy for congestion control at airports, according to Vaze.
The new airport will definitely help reduce congestion at the current airport, but there is no way it will be commercially viable without the government allocating traffic between it and the old airport, said a consultant who advises airport managers and developers, and who didn’t want to be identified.
“The best way of traffic allocation is to arrive at a minimum assured traffic for both airports in Mumbai, based on logic and dialogue. Beyond the minimum threshold, market forces should rule—airlines will choose airport based on passenger demand, operating cost, and quality of infrastructure and services,” said Dubey.
If the new airport doesn’t get enough traffic, its developer could levy extra charges on airlines and passengers. The new airports at Hyderabad and Bangalore levy a so-called user development fee (UDF).
“The initial project cost of Hyderabad airport is at least $600 million (Rs 2,676 crore today) and Bangalore $300 million. Even though there is no competition from older airports, these airports are charging UDF to become viable. The Navi Mumbai airport will be forced to levy UDF from the first year,” added the consultant. The new airport is expected to cost Rs 9,000 crore.
The City and Industrial Development Corp. of Maharashtra Ltd, the nodal agency for the Navi Mumbai airport project, says the new airport will cater to 10 million passengers a year in its initial phase (end-2014), 25 million by 2020, 45 million by 2025, and 60 million by 2030. It estimates steady growth in traffic at the new airport on account of special economic zones and industrial estates being developed in the region.