Indian aviation sector growth can boost the nation’s economy

With India's growing number of air travellers and the vast size of the country, the facilities should be far more developed than they are.

Terminal 3 of Indira Gandhi International Airport in New Delhi. EPA/ANINDITO MUKHERJEE

Mumbai // Greater efforts urgently need to be put into developing India’s airport infrastructure sector to cater for the projected growth of the country’s aviation industry, according to analysts.

The Indian prime minister, Manmohan Singh, this month inaugurated a much-delayed glitzy new 55 billion rupees (Dh 3.27bn) terminal at Mumbai’s international airport. Terminal 2 is expected to open to passengers next month, but experts predict that the financial capital’s airport could be saturated within just a few years. The problem reflects challenges across the country with the development of airport infrastructure.

“The government needs to get public and private investment together to submit plans and build new airports with minimal corruptive influence and cater to the airlines that want to serve India,” says Saj Ahmad, the chief analyst at StrategicAero Research. “With Indigo, SpiceJet, Etihad, Emirates, flydubai, Jet Airways, Singapore Airlines [SIA] and others all wanting to expand their presence, they are reined in by the lack of airports that they can fly to.”

Given India’s growing number of air travellers and the size of the country, he says that airport infrastructure should be far more developed than it is.

“India should hang its head in shame,” Mr Ahmad continues. “It needs to be on par, if not ahead of the likes of the UAE. If it doesn’t [develop], how else can its sustain consumer, tourist and business interest in a country that has a strangulated aviation policy?”

Failure to support the aviation sector could have a significant impact on the country’s economy, he adds.

The Indian government moved to boost the country’s aviation sector by opening it up to up to 49 per cent foreign direct investment by overseas carriers in September 2012. This led to Etihad Airways buying a 24 per cent stake in Jet Airways as part of a US$600 million deal last year.

The Indian conglomerate, Tata, announced it is setting up a budget carrier in the country with AirAsia. Tata has also teamed up with SIA to launch a full-service airline.

Airlines currently operating in the country, however, are not faring too well.

Bloomberg News quoting Capa Centre for Aviation, reported on Friday that it expects Indian airlines’ losses at $173 million to $262m in the third quarter of the financial year 2014.

Capa expects the flag carrier Air India’s loss at $150m to $175m; Jet’s losses at $60m to $80m and SpiceJet’s losses at $25m to $35m for the period.

But more needs to be done at a structural level, experts say. Air travel in India was long perceived as a rich man’s mode of transport, which held back development to some extent, but that it changing as the country’s middle class grows and more and more Indians take to the skies.

The size of the India’s aviation sector is set to triple over the coming years, with the number of passengers travelling through Indian airports expected to reach 450 million by 2020, making it the third-biggest aviation market in the world, according to the International Air Transport Association (Iata).

“The potential is enormous,” Iata says. “If Indians begin to travel with the same frequency as Americans, then the years ahead could see the market boom beyond the two billion mark. This will not happen quickly and is dependent on an expected increase in per capita GDP.”

The organisation praised the development of “world-class facilities” in Hyderabad, Kochi and Bangalore through public-private partnerships. But it highlighted the challenges in Mumbai as well as increased airport levies and charges at other airports that were adding to airlines’ high operational costs. While the airports in New Delhi and Hyderabad are run by the private group GMR, those in Mumbai and Bangalore are operated by another private entity, GVK, creating competition between the operations.

All the airports in the country used to be managed by the state-run Airports Authority of India. In the past decade, the government moved to attract much-needed private investment into the country’s airport infrastructure by opening it up to private sector participation. In 2006, the government handed over New Delhi and Mumbai airports to GMR and GVK, respectively, for modernisation.

“The private sector investment in [New Delhi, Mumbai, Hyderabad, and Bangalore airports] alone has been over 30,000 crore [300 billion] Indian rupees,” PricewaterhouseCoopers highlighted in a report last year. “While there have been several roadblocks and controversies in the journey towards private participation, it is fair to say that the user experience at these airports have taken a quantum leap, shaping expectations for the next generation of airports.”

The government in September announced it would allow private companies to take a 100 per cent equity stake to manage six airports, including Chennai, Kolkata, Ahmedabad and Jaipur.

Efforts are indeed under way to modernise and expand India’s facilities, but many believe this is not happening rapidly enough to keep pace with the growth of the sector.

Mumbai’s new terminal was heavily delayed because of land acquisition challenges and a struggle to secure permission to move a statue of a warrior king. A second airport is planned for Navi Mumbai, but that too is facing hurdles.

“Even with the improved terminal infrastructure Mumbai Airport sits on such a constrained parcel of land with no room for expansion to build a parallel runway that there are significant structural challenges to growing airside capacity,” according to the Centre for Aviation (Capa). “As a result the airport could be saturated within three to four years.

“A second airport is therefore a necessity for the economy of both Mumbai and for India as a whole. The Navi Mumbai airport project (US$2.3 billion and growing) has been hampered by a series of issues mainly of an environmental/land acquisition nature which have delayed the project by several years. The tender documentation is understood to be at the final review and could be issued before March 2014 but this is not certain. It is difficult, even in a best-case scenario, to see the second airport opening before the current Mumbai Airport reaches saturation.”

A report published by Capa stated that India was “under-prepared for the challenges ahead” and would need to invest $40bn in airport development by 2025, including building up to 50 greenfield airports.

Land acquisition is a challenge across the country.

“In all infrastructure projects in India, land acquisition is a major hurdle due to unclear laws and practice,” says Kamal Sen, the president and chief executive of Cogitaas, a consultancy specialising in strategy and planning.

“Mumbai airport is a case in point, while new terminals with a million square feet are being built, they are unable to acquire land from the slum dwellers to expand the runways. This will become a bottleneck.

“Similarly, throughout India, land acquisition for infrastructure has led to violence, litigation and political wrangles. The current land acquisition bill of the Congress, which aims to protect farmers, slum dwellers, squatters, will likely complicate matters further and slow down infrastructure.”

A recent survey conducted by the Federation of Indian Chambers of Commerce and Industry and Ernst & Young recently revealed that more than 90 per cent of respondents stated that delays because of land acquisition and environmental clearances were major issues impeding the development of new airports in India, despite the government’s aim to increase the number of airports in secondary and smaller cities.

“It has been observed that the development of low-cost airports in tier-2 and tier-3 is taking place at a slow pace,” according to a summary of the survey’s findings.