The Hindu Business Line : India and China — Economics of airports compared

Comparisons between India and China often highlight the latter's edge in many areas. This is true of the airport sector too. With a number of programmes set in motion, this is the right time for New Delhi to chart a flight plan for the sector.

WHEN comparisons are drawn between India and China, the usual refrain favours the large oriental nation and the advances it has made since it initiated economic reforms. The areas where India and China seem to have commonality are the size of the population and, therefore, the market and its potential. And, of course, the ethnicity of the two cultures. However, at a recent international conference on travel and tourism in the Asia-Pacific region comparisons and complementarities were drawn between the economics of airports of the two nations.

China can hardly claim to be better off going purely by statistics. It is the fifth largest aviation market in the world and second including Taiwan and Hong Kong. Still, only 10 of its 130 civilian airports are known to be profitable, according to a report of the Airports Council International (ACI). According to this report and a presentation by Mr Andrew Ma, Regional Director, ACI-Pacific, for an aviation and tourism forum in Singapore recently, the losses of 37 regional airports in China stood at $180 million in 2001. And only 10 airports are profitable.

What is the situation in India?

Hardly any better if one goes purely on financials and economics. The Airports Authority of India (AAI) manages 126 airports. These include 11 international airports, 89 domestic aerodromes and 26 civil enclaves at airfields under the jurisdiction of the Defence Ministry. However, intriguingly, some 38 airports are non-operational. And, worse, the losses of 115 airports, including the non-operational ones, totalled Rs 274.92 crore ($60 million) in 2003-04.

Certainly, India's losses on airports are about a third of China's. But these figures are misleading in that the airports on the other side of the Great Wall are, in general, superior in every aspect to Indian facilities. The Indian airports, as reportedly described by the Civil Aviation Minister, Mr Praful Patel, are nothing but constructions by municipal corporations.

So, while the economic numbers in terms of losses look good for India, the fact of the matter is that hardly any of the airports — including the busiest ones such as Mumbai and New Delhi — come close to the quality offered at Beijing or Shanghai. Just for starters, it needs to be noted that the world's first commercial maglev (magnetic levitation) train runs between Pudong International Airport of Shanghai to the main city. The distance is similar to the run between the Mumbai's Sahar International Airport and the city though in terms of the time taken and the stress levels reached are far less.

Where did China go wrong with its planning and how is it "right" now? Mr Andrew Ma's view is that China at one time lacked the sense of market competition. Besides, many of its airports levied "unsound" charges. Additionally, China was guilty of over-investment. Obviously, this point is closely linked with the way governments approach the market dynamics of airports and often misread it.

India, on the other hand, has failed to appreciate the needs of a market or the creation of a market for aviation. Many airports came up purely for political reasons and mileage, much like a portion of the nation's rail network. As a result, airports came up without assessing the needs of a region or the potential for growth. Nor did the aviation policy tie in with its tourism objectives (if there is any worth talking about). The only heartening factor is that India's investment levels in an airport have been lower than China's, hence the overall losses are small. But, surely, this is a sorry way of looking at the situation.

A significant factor about China's approach to its airports/hubs is the urgency and focus of the effort and the way it is investing in airports. While news reports suggest that India is considering investing $150 billion in infrastructure over the next decade, China, according to Mr Kapil Kaul, CEO of the Centre for Asia Pacific Aviation (CAPA), has put in $20-25 billion the past couple of years. And more investments are lined up.

There may not be great flow of money into India at this point but there is some amount of good news. The involvement of private parties in the Mumbai and Delhi airports seems to be on course. Construction of greenfield airports in Bangalore and Hyderabad are also to start this year. It is expected that Chennai and Kolkatta will also go the way of the two other metro city airports this year, and some of the regional hubs could pass into private hands next year.

What is missing, however, is a large vision or broad policy emphasis. The focus is that of privatisation with no set agenda other than moving the management of airports to private entities. And there is no history to suggest that the current plans (largely on paper or in process) will fructify into reality.

Consider this: India has been talking about new airports and modern infrastructure since 1998. The first policy on opening up airports to private participation was announced that year. However, since then only talk has happened and not a brick of significance has been laid anywhere. What has happened as a result is that the prime profit-making airports of Mumbai and New Delhi are struggling to manage the exploding traffic, both domestic and international. It is scary to think of the situation if the current plans fail to take off even as four new airlines are all set to take off this year and the number of international flights is on the rise.

While China did erred initially, it has made some corrections and moved in a planned fashion with the centralisation (one airline), then decentralisation, competition and expansion, further privatisation, consolidation and now greater deregulation. According to a CAPA report, "aviation is a means to promote economic and regional development". This explains why China's airlines handled about 90 million passengers in 2004 of which 90 per cent were domestic travellers. It is expected that China will account for the largest outbound tourists by 2020 (World Tourism Organisation). In this process some of the key milestones in China were the transfer of the management of 100 airports from the Central government to the local authorities and then their corporatisation. This was followed by asset re-organisation, end of monopolies, strengthening of regulations and the improvement of safety and services.

The Chinese government's larger vision has meant the acceptance of, and the need for, low-cost carriers to penetrate the market further. Many of the new and refurbished airports are making way for low-cost terminals and the government has been a keen supporter of this.

It is clear that China has a well-laid plan and broad vision.

But India, to its advantage, has a well-spread aviation map that is not merely dependent on business travel and cargo traffic to make its airports profitable. India can easily combine leisure (China has few destinations) and business travel to keep the fire burning. The smaller hubs/markets can be developed into low-cost terminals that would remove the "elitist" tag from air travel much like how aviation developed in the US and is now a part of the EU airspace. This is bound to add to passenger traffic, translating into better business for airports and an overall development of the travel and tourism business.

In addition, it is well-known that Bangalore is expected to be a crucial hub for the South and South-East Asian region. Other important emerging centres are expected to be Chennai, Kochi and Hyderabad linking up with Kuala Lumpur, Singapore, Bangkok and Hong Kong.

While these advantages are real, the Indian policy on travel and tourism seems to lack vision. Should there be low-cost terminals? Is there a plan to bring down airport costs? And does India, like China, wish to use aviation to promote regional and economic development? As of now, there are no clear answer to any of these questions. But given the various efforts planned vis-a-vis airports, it is the right time for the government to draw up a picture of how it wishes to see the Indian aviation and tourism sectors. India must not let its strengths fly out the window.

(The authors are with Indiabiz News and Research Services.)

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