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Upscaling Airport Infrastructure Development in India

Founder, 335bazaar.com
Jan 10, 2018 1:19 PM 3 min read
Editorial

India is currently the 3rd largest domestic aviation market in the world, surpassing Japan, with 100 million domestic passenger traffic in 2016 as per the Centre for Asia Pacific Aviation (CAPA). It is thus of paramount importance to scale up airport infrastructure in India in order to facilitate this increase in aviation activity. In addition to this, profitable business models for airports that will provide a significant boost to the aviation ecosystem and the economy need to be identified.

 

One such strategy that allows for financing of airport infrastructure in India while giving investors avenues to park their capital is the monetization of the land bank of the Airports Authority of India (AAI). This has been the subject of intense public debate for quite some time, but India's growing aviation footprint should push us towards more concrete action with regard to monetization and utilization of airport land for non-aero activities.

 

According to AAI, non-aero revenues for airports in India account for 20-25% of total revenue earned, while the number for airports globally is anything between 40-60% of the total revenue. Increasing their contribution would allow airports to be less dependent on aero revenues for business and rather invest in new infrastructure.

Monetization of land banks will allow airports to create efficient financing schemes for infrastructure growth to both upgrade existing airports and build new ones. AAI has a land bank of approximately 55,000 acres, mostly in urban areas. If it could monetize even 10% of this land bank, much needed infrastructure can be developed.

 

Possible avenues of monetization shouldn't be limited to retail and hotels. Land around airports can be used for the development of business parks and corporate campuses especially in tier 2 cities such as Bhubaneswar and Ranchi where corporates can take advantage of the relatively lower cost of labour and land. Such initiatives can create employment opportunities with a more efficient cost base. Tier 2 cities in India also requires modern trade, exhibition and convention centres. Unutilized land around airports can be used as sites for such properties.

 

Developing low cost no frills affordable housing projects is another option. Given the focus on affordable housing in India, monetization of airport infrastructure in India to be able to fund infrastructure via construction of affordable homes would achieve a twofold target.

 

Airports located near economic centres of trade can also develop cargo businesses in order to aid greater trade flow of high value time dependent products.

 

India needs to adopt a different non-aero revenue airport strategy when compared to those adopted gobally, especially in Tier 2 and Tier 3 cities. Retail shopping and parking have been major contributors of non-aero revenues around the globe. In India, however, the revenue potential from retail trade and car parking will be limited especially at the regional airports given a potentially lower demand and purchasing power. Creating infrastructure to assist in trade and commerce on the other hand would be a favourable way forward.

 

Conclusively, it is important for India to look at non-aero revenue sources from airports via a slightly differentiated strategy versus what has been used globally. Monetization of airport land banks for non-aero commercial uses achieves the twofold objective of creating an efficient financing mechanism for airport infrastructure growth while creating much needed surrounding infrastructure too.

 

Originally Published in Financial Express