Focus on airport infrastructure moving from metros to tier-1 and -2 markets: Report

The focus on airport infrastructure is moving from metros to tier one and two markets according to a report by Alvarez and marsel.

While air traffic has historically remained concentrated in metros and Tier 1 cities, there has been diversification over the last eight to nine years. The overall share of the top six metros in India’s air traffic has declined from around 69 per cent in FY13 to 63 per cent in FY21, with smaller airports accounting for a greater share every year, it said.

International traffic, however, remains concentrated in the top 10 cities, which accounted for almost 80 per cent of international traffic in FY19 and FY21. This diversification is in line with the trend observed in mature markets like the US and Europe, where the top 10 airports typically account for only 30–35 per cent of overall traffic.

Growing prominence

"The growing prominence of these smaller airports becomes even more evident with the increasing number of smaller airports in the country. In FY20, 29 airports in the country catered to a demand of one to five million passengers per annum (MPPA), up from 17 airports in FY13. Similarly, the number of airports handling five to 10 MPPA went up from one to six during the same period," it said

This shift towards Tier-2 and Tier-3 cities is likely to continue as the Indian Ministry of Civil Aviation has taken note of the imminent need to develop and advance the country’s aviation network, especially in Tier-2+ cities, it said. This, according to the consulting firm, is in line with the ministry’s vision and five-year plan, which includes an investment of ₹89,000 crore for the modernisation and upgrade of terminal buildings and the construction of new runways and airports.

The government targets to operationalise 100 more airports in the next five years and expanding its Regional Connectivity Scheme – UDAN to 1,000 routes and 100 airports. The ministry is working towards developing an ecosystem that would boost the growth of Indian carriers, helping them expand their current fleet and also developing a favorable environment for cargo operations in India.

Airport infra

According to the report, while the government is focused on the development of airport infrastructure, all eyes will be on the private sector to drive the next growth run.

Airports, which have historically been owned and operated by the public sector, have also been listed under this monetization programme. The Ministry of Civil Aviation and Airports Authority of India (AAI) have identified 25 AAI-owned and -operated airports for monetisation by FY25, with an indicative monetization value of ₹20,782 crore. Of these, six airports are being targeted for monetization through brownfield PPP models during FY22.

"The government is starting with larger airports, which have significant passenger traffic volumes, making them attractive investment propositions for the private sector (each of the six airports identified for monetization in FY 22 has a passenger volume of more than 1.5 million)" the report said.

Bundling model

However, the government wants to utilise private capital and provide support for the development of smaller airports as well.

These smaller airports may not have enough traffic to attract private investment on a stand-alone basis.

Therefore, a model of bundling is being considered where smaller airports will be bundled with a larger (and relatively more attractive) airport, it explained. This process will make the bundled economic unit viable for a PPP arrangement, making it easier to attract private investments.

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