Thursday, March 11, 2021

Indian Airports Need an Upgrade, but Next Round of Privatisation Faces Unique Challenges



Until the coronavirus pandemic hit and disrupted the ways of the world, the Indian aviation market was witnessing phenomenal growth. This was driven by an emerging middle class, increased propensity to spend and very low air-travel penetration. Rising household incomes and a middle-class expected to double in the next decade were key to this growth. Put simply, people had more money and they were spending it and taking to the skies.

And, the evidence was in the numbers. The number of flyers grew from 36 million passengers in 1996 to 73 million in 2006 to 341 million in 2019. And despite rapid growth in aviation, the market was far from saturated. Concurrently, there were scenes of airports bursting at the seams with aircraft lined up as far as the eye could see. Airport capacity was the need of the hour.

Fast forward to today, and it is estimated that $40 billion will be required for airport development alone over the next decade. The projects will be both greenfield—airports that are developed from ground-up—and brownfield, where existing airports are used and developed further. Interestingly, while the last two decades saw a dominance of greenfield projects, the upcoming projects are likely to be in the brownfield category.

At the time of writing this, 12 airports, all brownfield, are lined up for potential privatisation while two major greenfield airport projects at Jewar and Navi Mumbai are underway. The list of airports that the government intends to privatise includes those at Amritsar, Bhubaneswar, Tiruchirappalli, Raipur, Indore and Varanasi, with consideration that they may be clubbed with airports at Barmer, Jharsuguda, Salem, Jagdalpur, Jabalpur and Kushinagar. Because these are smaller cities, each with a distinct characteristic and unique travelling traits and spending profiles, this next round of airport privatisation promises to be very different from the previous ones. What worked in the past will not work in the future.

This current wave of privatisation will deviate from the public-private partnership (PPP) model and firms will instead be given management contract. This means, the ownership will still rest with the government while a private company will manage the operations. Arguably, this will help mitigate mindless construction coupled with cost-overruns, and address concerns that consumers have paid for much of the infrastructure by way of fees and charges. Whether or not this translates into reality remains to be seen.


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