Airports set to increase revenue after Tata Group takes over Air India

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#Air India, #airlines, #Business, #coronavirus, #India, #Tata Sons

Air India | Representative image

The aviation industry is abuzz with what Air India’s privatisation means for the sector. For starters, industry experts said that with the Tatas getting Air India, airports in the country could possibly earn more revenue.

The Tata Group already operates Vistara and AirAsia and with the acquisition of Air India and its subsidiary Air India Express, it will have the second-largest fleet in the country and a market share that’s possibly next only to IndiGo, which commands 57 per cent of the domestic market.

According to PS Nair, former chief executive officer of GMR Airports, with the Tatas holding the controlling stake in two full-service airlines (Air India and Vistara) and two low-fare carriers (Air Asia and AI Express), there will be synergy that will “help in spreading its wings across India, having a positive pan-India impact in ATMs at Indian airports.”

ATM refers to air traffic management, which is the aggregation of airborne and ground-based functions needed to ensure the safe and efficient movement of aircraft during all phases of operations.

Faster turnarounds and better slot utilisation by Tata Group airlines is expected to benefit airports, which will be able to earn more by handling more flights.

Videh Kumar Jaipuriar, CEO of Delhi International Airport Ltd., said the Tata Group’s takeover of Air India may lead to an improvement in the full-service carrier (FSC) market share for the company and additional revenue potential at airports.

Passenger spending

“An FSC brings in more business-class passengers, who have higher potential to spend at airports,” Jaipuriar said. DIAL operates New Delhi’s Indira Gandhi International Airport. Jaipuriar said Delhi airport will enjoy more benefits including an increase in hub operations, leading to a higher number of transfer passengers.

“Transfer passengers tend to spend much more time at the airport, which directly contributes to non-aeronautical revenue for the airport,” he said. “Dubai’s non-aeronautical income is significant due to a large share of transfer passengers.”

An airport earns aeronautical revenue from operations such as aircraft parking while non-aero revenue comes from shops, lounges and car parking.

Nair said there will be a positive impact on aero revenue in the medium to long run, although in the short term it is unlikely to have a positive impact.

“A pep-up in aero revenue at airports like Delhi where Air India has its base and other metro airports where Air India will have significant operations in the medium term is expected,” he said.

In the long term, by when the restructured Air India and the other Tata group carriers will have augmented their fleet and marked their presence in India’s metro and tier-II city airports, as also regained Air India’s past glory, a fillip to the aero revenue of these airports can be safely predicted, Nair said.

Satyendra Pandey, managing partner AT-TV, an aviation advisory firm, said that over the medium and long terms, the revenue impact will be positive, especially given the likelihood of increased international operations and cargo volumes.

“All this assumes that we don’t see a third Covid-19 wave and though indications are very positive that this will not happen, any airport traveler will tell you that complacency has set in. Social distancing is all but forgotten and passenger volumes for the month that will average north of 3 lakh per day mostly comprise leisure travelers, which is cause for concern,” he said.

Leisure travelers are price-sensitive, unlike business travelers who do not mind paying extra for a flight as it helps them get work done faster. However, Pandey provides a word of caution.

Non-aero revenue

“Overall airport revenues are linked to many factors but all trace to the number of passengers the airline can deliver to each airport and the quality of their spending,” he said. “With regard to airports, it is important to note that… the travel ecosystem is changing, especially because of behavioral changes, technology transitions and improving road and rail infrastructure.”

India’s airports have gradually changed their revenue mix and non-aero revenue was in the range of 50 to 60 percent before the pandemic.

“These have deteriorated significantly and will take a while to recover,” he said.

One person associated with the airline industry for over four decades maintained that with Air India going to the Tatas, there will be effective utilisation of slots and turnaround times at airports as on-time performance (OTP) will be the main USP of a Tata airline.

Air India reported the lowest OTP among six domestic airlines at 87.1 per cent in September, while IndiGo was No. 1 with an OTP of 95.5 per cent, according to data from the Directorate General of Civil Aviation.

Jaipuriar agreed that the Tatas may bring in better operational efficiencies at Delhi airport.

“It may lead to lower turnaround time at the stands and accordingly, better resource optimisation for them at IGIA. The Tatas may leverage AI’s fleet and use all the aircraft more efficiently, which will, in turn, benefit IGI airport too,” he said.

In India, OTP is calculated for operations to and from Delhi, Mumbai, Hyderabad and Bengaluru airports, which have incorporated some of the technology required to capture data.

Nripendra Singh, research director, aerospace & defense practice, at Frost & Sullivan, said Air India is bound to improve under its new owners and the airline was already doing an excellent job in terms of slot utilisation.

“However, it is important to analyse whether an improvement in slot utilisation will have a significant impact on the airline’s revenue,” Singh said.

Payment of dues

Lewis Burroughs, head of aviation, India, at ICF Consulting India, is not sure it will have any material impact on slot revenue at major airports.

“Pre-Covid, the market was largely slot-constrained at the major airports, which forced airlines to spill into night operations and tier 2/3 markets. The Air India sale is likely to lead to some route optimisation, but I’d believe these routes will be quickly replaced as airlines work out what other viable markets can be developed,” Burroughs said.

However, experts see other benefits, including dues paid on time to airports by the Tatas.

Air India also holds leased land at Delhi and Mumbai airports that the Tatas can now release so that airports can collect market rates for airlines using them, according to the person associated with the airline industry for over four decades.

It is estimated that Air India occupies about 80 acres of land in various parcels at Delhi airport and about the same area at Mumbai airport.

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