Low cost airports may be way forward for Indian aviation

Low cost airports and non-operational airports may be the way forward for airport infrastructure in India, according to the latest KPMG report titled 'Indian Airports – Global Landing Ground'

The report points out that besides offering the advantage of enhancing connectivity across the country, these airports will help in rationalising costs incurred by the airlines and decongesting traffic at regular airports. The report suggests that these airports will also provide much-needed relief for Low Cost Carriers (LCC) whose financial position has been negatively impacted by rising aviation fuel prices and operational costs. These airports will further the 'no frills experience' being offered by the LCC currently.

The study has an optimistic outlook towards the future of airport retail as well. Its key findings suggest that the takers for airport retail are spread across industries and service providers.

A new urban infrastructure form is on the anvil is the 'Aerotropolis', a cluster of aviation-oriented businesses around airports and transportation corridors emerging from them.

The aviation space in India is witnessing one of the worst turmoil of recent times. The figures from the Airports Authority of India (AAI) in August 2008, indicate that aircraft movements and passenger traffic decreased by 1.5 per cent and 10.2 per cent respectively compared to traffic in August 2007. International passengers grew by 9.3 per cent while domestic traffic decreased by 17.1 per cent in the same period.

Smaller non-metro airports like Coimbatore in southern India, registered a three-fold increase in international traffic as Air Arabia, Silk Air and Sri Lankan airlines started operations to this industrial hub, from October 2007.

The churn in the Indian aviation sector, which is an offshoot of the global meltdown, has lead to a decline in traffic and rise in costs. Indian airlines have been considerably impacted by this and are resorting to unconventional measures to tide over.

The likelihood of a merger between Jet Airways and Kingfisher is one such. Sole reliance on cost cutting is also not an easily achievable option. The bright side, however, is that development of airport infrastructure development continues, the report says.

Ideally, this infrastructure development should have preceded the rapid growth in the sector, but that not being the case it has made it imperative to bridge the gap now. The current downturn provides an opportunity to bridge this supply gap in airport infrastructure and be ready for the next wave of growth hits India.

Fallout of the slowdown could be the financing options for airport infrastructure. AAI and private airport developers may have to rely more on internal accruals and equity for financing these projects and decrease dependency on external debt.

LCCs, which opened the skies for the average Indian traveler, have fueled the growth in this sector. Interestingly, in August this year, the share of LCCs in the domestic sector declined to 31.5 per cent as against the 35.8 per cent in the previous year. However, the report states that with less than five per cent of the Indian population traveling by air, the large untapped market, which would fuel growth in the sector.

Passengers are key stakeholders in the entire process of airport development in India as they are the end users of the facilities and drivers of revenue growth. The report highlights the lack of representation for this set of stakeholders and brings out the challenge faced here.

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