Shriram Sanjeevi: “It was quite a surprise how the Adani Group outbid existing stronghold GMR Group.”

INDIA. In the latest of a series about travel retail and aviation in India, #Miles2Go Consulting Services Founder Shriram Sanjeevi assesses long-awaited privatisation at several airports and difficulties in Chennai.

[The views expressed in this column are not necessarily those of the Publisher].

I am both happy and sad as I write this article from the departure area of Chennai Airport’s Domestic Terminal.

Happy because there was a sweet surprise announced in February – that the Adani Group won tenders to operate six airports in India: at Ahmedabad (the group’s hometown and the capital city of the state of Gujarat), Trivandrum, Lucknow, Jaipur, Mangalore and Guwahati.

Similarly, the GMR Group won the bid to build and operate the new Greenfield Airport at Bhogapuram, 45km from Vishakapatnam, which currently holds a naval airfield being used for private passengers at present.

As a naval base, there are several restrictions including the number of parking bays and flight operating times. The airport has been seeing a huge spurt in passenger traffic, thanks to the affluence of the locals as well as other business and tourism opportunities that the coastal city of Andhra Pradesh attracts.

The GMR Group also won the bid to operate the Airports Authority of India (AAI)-run airport at Nagpur, Maharashtra. Nagpur is the centre point of India and has the potential to become an important hub, especially for air cargo movements, given that it could serve the rest of the country well due to its geographical advantage. Over the past decade, there have been several proposals to set up an aircraft maintenance centre at Nagpur, for the same reason.

GVK Group, on the other hand, currently manages only Mumbai Airport and is focusing on the upcoming second international airport at Navi Mumbai. The company has a huge baggage of debt and is treading carefully after it sold its stake at BIAL, the company which manages Bangalore Airport, to the Canadian-Indian entrepreneur Prem Watsa two years ago.

When I say that I am happy, it’s not just about the heavyweight Adani Group, with deep pockets and vast experience in managing infrastructure, winning six airport bids or the home-grown GMR Group spreading its wings across other AAI airports. Rather, it is the decision of the Union Government to replace AAI-managed airports with private partners.

Adani Group won tenders to operate six airports in India in February, including at Ahmedabad (pictured).

It was quite a surprise how the Adani Group outbid existing stronghold GMR Group as well as the first private investor in India – Zürich Airport – which won the bid along with L&T and Siemens to build and operate the first PPP model airport at Bangalore. It commenced work in 2006 and started operations in exactly 33 months.

“Hitherto, the airports sector in India was predominantly dominated by couple of players. The entry of a private player with deep pockets to manage these operational assets augurs well for the sector and in the days ahead, we should see good competition amongst the players,” Jagannarayan Padmanabhan, Practice Leader and Director-Transport & Logistics at Crisil Infrastructure Advisory, told The Hindu.

Adani Enterprises is expected to invest over Rs200 billion to develop and operate these six airports, while AAI is expected to garner over Rs5 billion pa in the first year and subsequently earn as per passenger footfall at the airport.

The previous leg of privatisation during the regime of UPA 1, in 2004-5, saw huge disruptions in the AAI-run airports at Delhi, Mumbai, Bangalore, Chennai, Kolkata and Hyderabad. The two private bidders for Delhi and Mumbai, namely GMR Group and GVK Group respectively, assured the employee unions there would be minimal disruptions to their staff while also saying they would absorb as many of them as possible and accommodate their employments.

The Greenfield Airports at Bangalore and Hyderabad had minimal disruptions though, with both the former airports put out of use for passenger traffic. There is a school of thought which suggests that both the former airports would be taken over for commercial operations, although there’s no official word on it, yet.

Trivandrum is a state capital and has a huge influx of Non-resident Indians but does not have the malls and brands to match.

I was part of the start-up team at BIAL that established the first private airport at Bangalore in 2006, where I oversaw the retail, food & beverage and commercial opportunities, including foreign exchange counters. The travel retail industry was pegged at approximately Rs3 billion at the time in India; a decade later it has grown an estimated 10 times with Delhi and Mumbai airports leading the pack and Bangalore and Hyderabad right behind.

Add to the commercial revenues to the airports a huge pay-out to AAI (which isn’t earning anywhere close to this at airports managed by them) and a superior passenger experience, so much so that Delhi and Bangalore have been winning awards every year from Airports Council International (ACI).

So I was delighted that the government has finally offloaded the non-core activity of managing day-to-day operations at these AAI-run airports, and will focus on managing and monitoring the aviation industry through its Ministry of Civil Aviation and the watchdog AERA. I was very happy that these airports, which are already growing in healthy double-digit figures in passenger numbers, will improve connectivity to their respective regions, thereby improving business opportunities, international and domestic tourism and most importantly, generate local jobs and employment.

Needless to say, non-aeronautical revenues at these Tier 2 airports are expected to provide a significant boost to the operators. While all these airport locations are among the top 20 favourite cities for Indian and international retailers, availability of Grade-A retail space coupled with the mismatch of aspirations of customers has led to stunted growth for the retail business in these towns.

For example, Trivandrum is the state capital and has a huge influx of Non-resident Indians (NRIs) who live in the Gulf. Airport traffic is second in Kerala next to Cochin International, which incidentally is also a PPP airport with a majority held by the State Government of Kerala. However, Trivandrum does not have world-class brands or shopping malls, nor does the airport cater to the specific needs of travellers.

Passenger traffic has grown at Chennai Airport to the extent that a new Greenfield Airport is needed.

Similarly, Ahmedabad is the capital city of Gujarat and has a huge inflow of NRIs all year from the West. While there is quite a lot of retail in the city side, the airport can offer much more than it does currently through travel retail. All other airports have the ability to offer international and domestic retail brands which passengers would simply lap up, thanks to their unavailability in their cities.

Kolkata Airport underwent a huge renovation a few years back and has grown quite well. In my recent visit to the city two months back, I felt that the infrastructure and maintenance was as good as at any other privately managed airport in India save for the retail areas, which remain under-utilised.

Going back to my opening comment, I was sad when writing this because it appears there is no respite for Chennai Airport. It is brimming at the seams with passenger traffic growing but also getting restricted due to space congestion, especially for international movements. For the third consecutive year, Tamil Nadu ranked among the top three tourism destinations in the country in terms of visits, with Chennai Airport being the main gateway of this traffic. In domestic passenger traffic, Chennai is in joint third place with Bangalore, with Mumbai and Delhi leading the pack.

A new Greenfield Airport in Chennai has been in the offing since 2008. A vast land parcel was earmarked at Sriperumbudur, located in the north-west of Chennai on the Bangalore Highway. Last year, it was announced that the State Government could not procure enough land for the project and it was shelved. Therefore, AAI decided to demolish the old terminal buildings at the existing airport, making way for a new domestic and international terminal building at an estimated cost of Rs35 billion. The proposed new terminal building would cost upwards of Rs40 billion. To give perspective, a new runway, an ATC tower and a new terminal building for domestic and international departures at Delhi (in 2009), which has been winning awards every year, cost Rs90 billion.

The Tamil Nadu State Government is proposing that the new Greenfield Airport be situated at Mamandur, about 85km from Chennai, which is currently connected only by the Grand Southern Trunk Road [popularly known as the GST Road] that leads to Kanyakumari via Trichy. The road is already four lanes with two shoulders on either side with no more space for road expansion.

Without a faster and cost-efficient means of connectivity, it would be a nightmare to reach the airport well in time for passengers from downtown Chennai or even its suburbs. I am deeply saddened by the apathy of both the State and Central Governments towards aviation opportunities at the cultural capital of India and that, as an individual, am simply unable to do anything about it.

For more information about #Miles2Go Consulting Services, click here.