Business models of airports will have to be reworked: AAI chairman Arvind Singh6 min read . Updated: 24 May 2020, 05:06 PM IST
- 'As traffic may be slow in returning to previous levels, aeronautical revenue from airlines will take a hit. One clear message is that one has to focus on non-aeronautical revenue'
NEW DELHI: Around midnight on Sunday, a Delhi-bound IndiGo flight is scheduled to depart from Bengaluru. If all goes as planned, it will be the first commercial flight since the country went into a lockdown on 25 March. More importantly, it will set the ball rolling to spur the Indian economy. In an interview, Airports Authority of India (AAI) chairman Arvind Singh, who is responsible for creating, upgrading, maintaining and managing civil aviation infrastructure ahead of the resumption of domestic flights, shares his views on the prospects of the Indian aviation sector in the post-covid-19 world. Edited excerpts:
The first flight is scheduled for Monday. How do you expect it to play out?
Permission has been given to operate a third of the summer schedule. But, on the first day, I expect a bit lower traffic as planes are still getting readied and, in some cities, service engineers have not been able go to airports. It will pick up steadily.
India was among the fastest-growing civil aviation markets before covid, offering growth opportunities for aircraft and engine makers. What is your outlook for air travel now?
We were the third-largest market and, given that our air travel penetration levels are still low, there is a large untapped demand. If you see the growth rate over the last three-four years, primarily it came from tier-2 and tier-3 cities. Some airports in these cities were clocking over 25% growth in passenger traffic year-on-year, while growth at the national level was just in double digits.
Given the fact that we have seen such growth in smaller cities, it should continue once we tide over the current disruption caused by the pandemic. It may take some time to catch up with that growth trend given the coronavirus crisis and people’s lack of confidence in travelling, especially leisure travel. When gradually confidence builds up, we will bounce back because there is a huge unmet demand. Flying as a mode of travel has the advantage of being quick, compared to rail travel, and competitive pricing in this industry has helped it penetrate the market. In some sectors, fares have not changed for a long time. That is because of the penetration of low-cost carriers.
AAI’s medium-term goal is to step up capacity four to five times to facilitate 1 billion trips a year. Will you revisit this target in the post-covid scenario?
Definitely, we will have to have to re-prioritise. There will be a dip in air traffic. Some say it may take two quarters to get back to previous levels, while others claim it could take longer. Even though we had plans for such capacity expansion, there were some airports which were bursting at the seams. They were carrying passengers three to four times more than their capacity and had not been able to expand for many reasons. This (period of low traffic) will give those airports—Patna, Bagdogra, Delhi and Hyderabad, for instance—the time to catch up and expand terminals.
Six airports have been privatized in the first round. What about the twelve others that are expected to be privatized?
Yes. Of the first six, we have awarded three and, for the rest, we have got clearances, and will be awarding them soon. The next six—Varanasi, Raipur, Bhubaneshwar, Indore, Amritsar and Trichi—we expect a cabinet decision soon and will then invite bids. Apart from that, there is a whole list of airports that the AAI board has identified for future privatization. Based on the experience of the forthcoming six, the next step will follow.
Has covid-19 led to a collapse of the business models of all airports?
Definitely, business models have to be reworked. As traffic may be slow in returning to previous levels, aeronautical revenue from airlines will take a hit. One clear message is that one has to focus on non-aeronautical revenue. That kind of reworking has to be done. Also, commercial contracts, for example, for sale of food and beverages, used to fetch revenue for airports. Since footfalls will decline, that model also needs a relook. It is a challenge for all airports in the country, including those run by the AAI.
What are the non-aeronautical revenue sources beyond contracts for food and beverage sales?
One non-aeronautical revenue source is monetization of land. That is one area that some experts have suggested. The recommendation is that there is a large part of land parcel available with the AAI, and other airports, which can be used for commercial purposes.
Will that be allowed for the airports that are being privatized?
Not this one (the six airports in the second phase of privatization), but there is a thinking. Right now, land use is only for aeronautical purposes. There is a thinking going on whether we should also consider land use for non-aeronautical purposes given that in the current circumstances aeronautical revenue can take a hit for a few years.
What are these options?
Currently, for instance, AAI can develop land only for aeronautical purposes. One possible option could be that we give permission for other commercial purposes, which are not aeronautical in nature, such as commercial space development for office and shopping complexes. This will need an amendment to the law.
What about existing airport re-development projects?
Mumbai has requested invoking force majeure provisions in the concession agreement. We have only deferred revenue share payments till June.
What are the real estate development options available to existing PPP projects?
They cannot develop land for non-aeronautical purposes. Now, it is restricted to uses that are related to flying, which includes hotels, cargo complexes and warehouses.
There was some discussion about limiting the maximum number of airports that one bidder can be awarded in a single round of auction. What is the status?
Right now, the civil aviation ministry’s proposal is to go ahead in the same fashion as the last round. Let us wait for the final decision.
The national infrastructure pipeline document claims that between now and 2025, airport infrastructure will get about Rs1.4 trillion investments. Under the present circumstances, is this valid?
For Ude Desh ka Aam Nagrik (UDAN), we get funding from the union budget. Operationalizing UDAN airports, which are in smaller and underserved areas, will continue as planned. There will be some re-prioritization in the case of some projects, which of course will happen, but subject to the set of priorities.
Has the pandemic affected efforts to woo private investments?
The Prime Minister took a meeting recently. The second round of six airports (for privatization) which was in limbo for some time has now been put on fast track. Once the cabinet approves, bids will be invited soon. Let us go to the market. If there is a good response, we will go ahead.
Will the covid-19 crisis affect India’s ambition for efficient and low-cost regional connectivity?
Regional connectivity has been a high impact programme if you look at the areas covered and the number of passengers. From where we were, say, two-three years ago, now 45 new airports are operational in previously untapped areas. Some bidders, though, had certain financial, land-related or execution-related problems, which led to delays in some cases. You will see a healthy number of airports getting operationalized this year.
How will the development of waterdromes and seaplane services within India, and with neighbouring countries, shape up?
That is one area that has not taken off in the way we wanted it to, but our reviews show that we will be able to operationalise some routes this year in Andaman and Gujarat.
Creating a robust maintenance, repair and overhaul (MRO) industry from the scratch has been a key goal of the central government. How will AAI take this forward?
AAI’s contribution will be in ensuring the availability of land and other elements of the ecosystem as MROs need facilitation at the airports.