INDIA. In the latest of a series about travel retail and aviation in India, #Miles2Go Consulting Services Founder Shriram Sanjeevi assesses a government scheme to open over 40 airports in Tier 2 towns to boost travel and tourism.
[The views expressed in this column are not necessarily those of the Publisher].
One of the present Indian government’s most ambitious projects has been to upgrade facilities in the country’s top 20 airports, and to open up the skies with Tier 2 towns.
It’s a little-known fact that India has over 400 airstrips, putting it near the top of the world rankings. Most of them were set up during the World Wars, when India actively supported operations.
After India achieved independence, aviation was brought under the control of the Indian government and a dedicated ministry was subsequently created. The erstwhile Tata Airlines, run by the Tata Group, was taken over by the Indian government and was christened Air India, a government subsidiary.
After more than 70 years of operations and various avatars created by numerous successive governments, prime ministers and aviation ministers, the present government has readied Air India for a private sale. But there are no takers today within India or abroad, what with stringent buyout clauses which include paring accumulated debt of over US$2 billion.
Back to airports. The government took a decisive step in modernising key airports in India and accordingly it was decided to privatise four key airports. In 2005, Delhi and Mumbai airports were handed over for private management, in accordance with the Public Private Partnership (PPP) model, to the GMR Group and GVK Group respectively.
Two Indian businessmen (GM Rao and GVK Reddy), who had risen from the ranks and built their business empires, were awarded these coveted contracts. Interestingly, neither party had prior interest or experience in running airports or airlines.
With just one flight movement per day, how would it even make sense to bid for a tender, let alone make money through the lifetime of the contract?
Both of the airports were brownfield – in that the existing airports were given to them lock, stock and barrel minus operational debts or profits as the case may be. There were several protests among the various airport employees’ unions and both the new owners solved all of the issues one after the other. As I write this article, Delhi Airport is ranked among the best in the world as per the recent Airports Council International (ACI) rating of airports. Delhi opened its new T3 in 2013 and Mumbai commenced operations at its new T2 in 2016, with both winning critical acclaim among users. Needless to say, these two airports are the cynosure of eyes of India and they are getting more and more efficient by the day.
The new private airports at Bangalore and Hyderabad were awarded to a consortium led by Zürich Airport and GMR Group (again) respectively, with work beginning in 2006 and the airports commencing commercial operations in 2008. As I write, air traffic is growing fastest in India at Bangalore (the airport is now run by India-born Canadian businessman Prem Watsa) with T2 and a second runway opening before 2020. Bangalore also achieved the top airport ranking in its category in ACI’s ratings this year.
The government has commenced an ambitious scheme under the moniker ‘UDAN’ – which stands for ‘Udega Desh ka Aam Nagarik’. Translated, this means ‘A Common man can fly’.
Chennai and Kolkata, which are among the top six airports in India by passenger traffic, have faced stiff resistance to privatisation from employees’ unions. The respective state governments haven’t been able to convince the stakeholders (for fear of losing vote banks) and have instead built new terminals which have cost over US$1 billion of public money.
Chennai Airport was ranked among the worst in the world in ACI’s ratings last year despite investment in new terminal buildings. This is due to a variety of reasons and is hardly surprising. Kolkata has a much better infrastructure and fared better in the tests.
Successive governments have developed several airports across India in over 30 Tier 2 towns over the past decade. The current government has given assurances that it will activate over 100 operational airports in India during its tenure (which ends in May 2019) and 96 airports are being put to use as I write. The 100th airport was set to be inaugurated in July in one of the North Eastern States – which are usually not the most prioritised in the Union of India.
The government has commenced an ambitious scheme under the moniker ‘UDAN’ – which stands for ‘Udega Desh ka Aam Nagarik’. Translated, this means ‘A Common man can fly’. Over 40 airports have been identified for this purpose, where airstrips already existed and are being developed by the government. These airports are expected to connect to the nearest metro airports and from there on, connect passengers to other parts of India or abroad. This means that quite literally travel times can be cut down by almost half for passengers in smaller cities to reach other parts of India and of course save significant time and money while flying abroad.
On the other hand, this scheme could also significantly boost inbound tourism to smaller towns. There are a number of returning NRIs (non-resident Indians) who prefer to visit their families in their home towns while foreign nationals may visit places of interest such as temples, monuments, mountains, deserts and so on. The government has fixed fares not exceeding Rs2,500 (US$36) one way for flights to UDAN airports – and this is non-negotiable.
At times, populism takes over common sense and the UDAN scheme is just another example.
While the government’s intention is noble, the execution is poor (if not a joke). For example, a new airport has been commissioned at Tier 2 town Salem, which is about 330km from Chennai and about 180km from Coimbatore (a mini metro). A single flight goes from Chennai to Salem at 9.30am, arriving in 45 minutes and returning to Chennai by noon. If one were to take a train in an air-conditioned sitting chair car, the cost is approximately Rs930 (US$13.60) and takes about five hours to reach Salem when it departs Chennai at 6.15am. Compare this with the odd timing of the flight, the added costs of ground transportation to the airport, and the exorbitant costs of food & beverage both at the airport and onboard.
Needless to say, the patronage for this route has been moderate in its first month of operation. There have been days when the flight has been cancelled because there were less than 20 bookings in an 80-seater aircraft: below this threshold, it doesn’t make commercial sense to fly.
On the airport front, the terminal facilities are managed by Airports Authority of India (AAI). Consequently, commercial outlets such as F&B, lounges, coffee kiosks, parking management, and so on, are leased on H1 tenders (highest bidder as per AAI pre-qualification norms). This means passengers do not get the best services (without a bias). With just one flight movement per day, how would it even make sense to bid for a tender, let alone make money through the lifetime of the contract?
At times, populism takes over common sense and the UDAN scheme is just another example. While the aviation ministry must continue to open newer airports (under the UDAN scheme or otherwise), it must also focus on upgrading facilities at existing AAI-operated airports and increase frequencies by adding newer routes. Needless to say, AAI must distance itself from managing daily operations and privatise airports instead, thereby reducing the Capex pressure on the exchequer. It would also be able to focus its energies on stricter audits of airport premises, be a watchdog to monitor fares and build a passenger-friendly environment. When the ecosystem is better managed, more passengers will fly.
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