The Case For Developing 100 Regional Airports In India


Earlier this year the government laid out the ambitious plan to develop hundred regional airports. This in conjunction with an infrastructure push, and towards connecting all parts of the country. But industry watchers were skeptical for a host of reasons. And indeed there were strong arguments against it. Because air-traffic demand is concentrated in the metros; because developing regional airports remains a challenge; because regional airports have provided low returns; because India has seen several regional airline failures; and because the trend of urbanization means more folks will move into cities. As such, the idea of building 100 regional airports seemed outlandish.

Yet an ironic (and unfortunate) sequence of events has aligned elements that make possible the development of these 100 airports. This includes a decimation of demand due to the Coronavirus, forecast of significant job losses and a likely boost to domestic demand once air-travel picks up. What may have seemed like an over-ambitious project earlier – now seems to be one that will hit all the right notes.

Regional airports require unique business models

A regional airport is one that sees traffic of fewer than one million passengers per year. For India, the majority of airports are in this category some seeing footfalls of as little as 7,000 passengers. Most regional airports operate at a loss.

Because in current airport models traffic is the lifeblood of revenue generation, minuscule traffic volumes effectively mean that smaller airports are challenged to provide an adequate return. By the numbers, estimates for the Airports Authority of India (AAI) indicate that 75% of the airports owned by AAI are registering losses – most being regional airports.

Yet regional airports are also critical to the towns and communities they serve. Indeed there have been numerous cases where connectivity (of which the first element is the airport) has altered the very nature of the local economy.

But keeping in mind low traffic levels, along with developing infrastructure, there also has to be an effective strategy geared at developing traffic, tourist footfalls, and connectivity. On this front, several avenues remain unexplored.

Developing infrastructure is only the first step

Airport projects usually involve marking out a catchment area, traffic forecasting, regulatory approvals, project financing, land acquisition, and implementation. The timelines are long -mostly because of the regulatory hurdles. Once those are cleared, the infrastructure buildup does not take a significant amount of time.

But infrastructure is only the first step. In conjunction airports also have to look at how to generate demand. Because the demand in smaller towns is still in very early stages and may take a while to build. Further, the current traffic profile is one where metro cities still account for 60% -70% demand and with increasing urbanization, this will only get more skewed.

Thus for demand generation, each airport has to look at drivers that may help this. These drivers can range from tax incentives to hotel capacity to weather patterns. Other avenues include integrating the airport into a tourism circuit, leveraging location and focusing on niche demand profiles. Overall, demand profiles have to be thought of and built-in parallel with infrastructure.

Availability of talent makes this an ideal time for planning

Regional airports have been challenged in attracting and retaining talent. Partly due to geography, partly due to pay and partly due to viability. Simply put, no one wants to move to a small town to work on an airport project which airlines will only fly to if it magically fits with their schedule patterns. Ironically, with the Corona crisis, the talent challenge is alleviated as airlines are slashing capacity plans and layoffs are only a matter of time. Talent is available in abundance and this talent can help bridge the gap between how airports and airlines think.

Airports have traditionally focused on what airlines do but not as much as how airlines think. Thus other cities are often used as proxies – a process which by its very nature gives away the uniqueness of each airport. Often, as smaller cities want connectivity and offer several subsidies and waivers, this doesn’t always fit in with airline plans. Because regional routes do represent a high risk in terms of cash-flow, traffic, and network integration. Indeed, when looking to prune networks, the regional routes are usually first on the chopping block.
To ensure this does not happen, airports have to start planning in a manner that preempts concerns and collaboratively addresses how demand can be sustained. The right talent can help them toward this goal.

The ‘return on capital’ conundrum

Perhaps the biggest challenge regional airports face is providing an adequate return on capital. The failure to provide an adequate return on capital can be traced to the business model which has not been adapted. Thus, the airports continue to lose money and are propped up by allocations and subsidies. This need not be the case.

Driving profitability for regional airports requires a complete rethink of costs and on revenues. The two largest cost drivers namely capital expenditure and operating expenditure are often taken as given overlooking several avenues to impact these via innovation and technology. New construction methods including pre-fabricated units, mobile units and traditional materials are yet to be explored. Additionally, new innovative methods of financing, risk-pooling and clustering (as advocated by India in the ICAO 39th General Assembly) can go a long ways towards financial viability.

On the revenue side, there are opportunities that can be leveraged with the core purpose of delinking revenue from traffic flows. These include landside development, parking, 24 X 7 outlets, advertising, hangars, general aviation, training schools and meeting venues. It is worth repeating that planners essentially have to look beyond the airport and look at the airport in the broader context.

A focus on community in addition to connectivity

For a small town, the airport can be as much about community as it is about connectivity. Indeed, small regional airport provide an economic boost for the towns they reside in. Yet, when one visits smaller regional airports, the dissonance between the airport development, city planning and demand development is evident.

Planning for these airports requires an approach that looks at the airport in the context of city and community. As such it requires folks who think in terms of integrative approaches rather than linear approaches. That is, the plans must include the local law-enforcement, the local trade bodies, the hoteliers, the local museums and perhaps also neighboring cities (towards developing a tourism circuit). A return to basics may just be the initial step – whether it is the availability of transportation to and from the airport; or adequate hotel capacity; or signage and lighting. And the airport must be planned as a regional airport as opposed to force-fitting plans on the existing airport

Interestingly, driven by technology and communication, several cities such as Coimbatore and Surat have active advocacy groups that have successfully engaged with airlines for service. Other cities such as Aurangabad have had trade-bodies engage with airlines and offer several solutions. In Trichy a group actively shares data and analysis about the airport, traffic numbers and connectivity. Overall, slowly but surely, one is seeing an engaged and active citizenry. And it is this element that can be critical to the success of a regional airport.

As the global economy rebalances and as India re-asserts itself on the global stage tourism, trade, talent, technology and talent will be critical drivers. An airport is what can make all these possible for small towns. In not only driving connectivity but also strengthening the community.

The time is ripe for India to develop 100 regional airports.

Satyendra Pandey is an India market expert and has held a variety of roles within the aviation business. His positions include working as the Head of Strategy & Planning at Go Airlines (India) and with CAPA (Centre for Aviation) where he led the Advisory and Research teams. He is also a certified pilot with an instrument rating.