Global infrastructure investors would have taken note of news that the Airports Authority of India may privatise some of its profitable airports. Airport infrastructure in India has the potential to yield significant returns and is critical for a growing, consumption-driven economy. However, developing and growing airport assets in the country will require investors to make some critical decisions around business models to ensure profitably.
Firstly, for each airport, it will be crucial to decide whether the primary revenue driver will be aeronautical revenues or non-aeronautical revenues. Aeronautical revenues are those that the airport operator derives from terminal rents, landing fees and other services provided to the airlines. Non-aeronautical revenues are from activities such as retail, parking, hotels and business parks.
In Indian airports, given low per capita incomes, the passenger-driven non-aeronautical revenues such as retail will be relatively low and will pick up only as incomes rise. Also, some of the airports under the proposed privatisation will cater primarily to domestic demand, thereby leading to a lower retail spend per passenger.
Therefore, for investors, the asset returns will be based on generating aeronautical revenues and maximising non-passenger, non-aeronautical revenues. For certain airports, real estate development to create a critical mass of non-aero revenue assets will be crucial to make them profitable. Therefore, the decision regarding the business model will be a crucial because the most important commodity is the land available.
Building significant non-aero revenue-generating assets would mean that if passenger growth were to pick up in the years to come, then there would be less land available for terminal and runway expansion. On the other hand, not building non-aero assets would imply more land available for the future but also a lower revenue stream. In a dynamic economy such as India, passenger growth predictions coupled with exceptional real estate asset management will be critical to delivering optimum returns.
02/05/18 IANS/Quint
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Firstly, for each airport, it will be crucial to decide whether the primary revenue driver will be aeronautical revenues or non-aeronautical revenues. Aeronautical revenues are those that the airport operator derives from terminal rents, landing fees and other services provided to the airlines. Non-aeronautical revenues are from activities such as retail, parking, hotels and business parks.
In Indian airports, given low per capita incomes, the passenger-driven non-aeronautical revenues such as retail will be relatively low and will pick up only as incomes rise. Also, some of the airports under the proposed privatisation will cater primarily to domestic demand, thereby leading to a lower retail spend per passenger.
Therefore, for investors, the asset returns will be based on generating aeronautical revenues and maximising non-passenger, non-aeronautical revenues. For certain airports, real estate development to create a critical mass of non-aero revenue assets will be crucial to make them profitable. Therefore, the decision regarding the business model will be a crucial because the most important commodity is the land available.
Building significant non-aero revenue-generating assets would mean that if passenger growth were to pick up in the years to come, then there would be less land available for terminal and runway expansion. On the other hand, not building non-aero assets would imply more land available for the future but also a lower revenue stream. In a dynamic economy such as India, passenger growth predictions coupled with exceptional real estate asset management will be critical to delivering optimum returns.
02/05/18 IANS/Quint
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