Is our fixation with user development fee (UDF) as the funding workhorse for our airports causing us to overlook other more efficient and social benefit-maximizing funding options?

V Ranganathan, Indranil Guha, Manuj Sethi & Reema Mahajan

Indian airports are in the throes of modernization. With work complete or nearing completion in four major ones — Delhi, Mumbai, Hyderabad and Bangalore — and tier II city airports queued up already, India’s airports liberalization process has progressed briskly. But is there more to it than what meets the eyes? Replacing our creaky airports with glitzy glass and mortar structures is one thing; transforming them into thriving international aviation hubs is quite another.

For that to happen, robust governance is a fundamental pre-requisite — an area that is the Achilles heel of our bureaucracy and political establishment. For example, before the airports privatization got underway, there seems to have been very little deliberation in our policy circles with respect to regulation of user charges to be charged by these new airports. No wonder, this issue has become one of the stickiest bones of contention since the opening of the new Bangalore and Hyderabad airports.

Under the proposed user development fee (UDF) regime, Bangalore International Airport Ltd (BIAL) has proposed a user charge of Rs 675 for domestic passengers and Rs 1,070 for international passengers. So how likely is it that such a UDF regime, which is slated to become the funding workhorse of most of India’s major greenfield and brownfield airports, would in fact end up becoming a major drag on the growth potential of India’s civil aviation sector?

The success of most of the leading airports around the world has been largely due to their ability to diversify their revenue streams and draw a larger share of their income from nonaeronautical revenues (that is, commercial activities like retail revenues and office rentals) vis-a-vis aeronautical revenues.

Singapore’s Changi International Airport earns 60% of total revenue from non-aeronautical charges, up from 40% in 1981. Non-aeronautical revenues help Changi cross subsidize its user charges and landing fee, which in turn helps the airport attract an ever increasing base of carriers and passengers from around the world to fly to Changi. The increased footfall thus generated drives retail spending at Changi’s many retail outlets and hotels, thereby covering for under-realization of user charges. To support this strategy, Changi has a conscious policy of investing in capacity well ahead of demand. Changi today has the capacity to handle 70 million passengers per annum (mppa) against an actual demand of 37 mppa (2007 figure). So successful has this strategy been that the tiny city state with a population of just 4.5 million manages to attract nearly eight times as many travelers to its airport.

Just like Changi, a CRISIL study has shown that the British Airport Authority earns 72% of total revenue from non-aviation activities; Toronto earns 62%; while Indian airports earn no more than 10-30%.

For Changi’s model to be successfully replicated in India, it’s imperative that Indian airports attract more passengers by rapidly adding capacity, lowering landing fee and eliminating UDF. Currently, our leading airports serve no more than one-sixth to one-fourth the passenger numbers served by the likes of Changi and Heathrow. For a city with a GDP half the size of Singapore’s, Bangalore’s airport for example, serves a paltry 10 mppa (against 37 in case of Changi).

Such measly scale of operation means that there is hardly any cost efficiencies associated with scale. Furthermore cost of capital for airport financing typically tends to be on the higher side, because of the plethora of operational, financial and political risks they entail. Besides, India’s upcoming airports have to contend with high operating expenses, owing to very high debt service obligation. Therefore, they seem to have little choice but to charge rather steep user charges to bridge the gap between revenue realization and debt obligations, more so during the initial years when the optimal revenue potential of the airport has not yet been realized.

So is there an alternative funding model that can help Indian airports lower their user charges? This is where some financial ingenuity and smart leveraging of funding opportunities provided by multilateral agencies like International Bank for Reconstruction and Development (IBRD) and Multilateral Investment Guarantee Agency (MIGA) can do the trick. Both IBRD and MIGA are part of the World Bank Group and help promote investments in developing countries by providing insurance cover against political and other non-commercial risks for projects in the developing world.

Now this is how it works: An airport first secures IBRD/MIGA’s backing which enables it to raise debts, whose repayment is structured such that repayment obligation during say, the first 10 years of operation is negligible. At the end of 10 years, the entire original debt is retired through a lump-sum ‘bullet’ payment, which in turn is refinanced through a new loan. The benefits of this model are two fold. Firstly, the cost of capital at the time of refinancing is much lower, given that the airport would have been in operation for 10 years by then and that most of the risks would have been mitigated over this period. Secondly, the ingenuity of the debt structuring ensures that interest payment obligation in the first 10 years is very low, thereby eliminating the need to charge high user fee to fund debt service obligation.

This model can be a very effective alternative to the UDF-based funding structure for India’s upcoming airports.

For the next Changi to emerge out of India, what we need is not just brand new terminal buildings replacing the old ones, but a change in mindset and a concerted strategy — both at the level of individual airports as well as at policy formulation level. It’s going to take some doing and out-of-the-box thinking to bring about a shift in the centre of gravity of Asian civil aviation from the Asia Pacific region to the subcontinent.

(Prof V Ranganathan is the RBI Chair Professor at Indian Institute of Management, Bangalore. The others are second year MBA students at the institute)

Source : The Times of India

Airports need 1,000 more ATC officers
Anirban Chowdhury / New Delhi

If you thought that the IGI airport in Delhi is the only one suffering a shortage of air traffic controllers (ATC), think again. The country has 1,500 ATC officers, which is only 60 per cent of its requirement of 2,500 ATC officers.

And despite new recruitments and training, the shortage will remain for the next few years, forcing ATCs to work much more than the stipulated working hours.

In fact, even the existing numbers are not all on ground controlling aircraft. “1,500 is just the total number of the officials across the country. Since the officials have several other duties and have to be present in the headquarters also, the total number of ATC officials (ATCO) actually controlling aircraft in the country at any given time comes to around 1,200,” said an AAI official.

Take the case of the Delhi airport, which currently has 200 ATC officials in all, out of which around 120 are senior officials.

The airport recently inaugurated its third runway and the internationally accepted requisite number of ATCOs for an airport having three runways comes to 350, a figure the airport will only reach in a year’s time, given the recruitment plans.

“Currently, as a result of the shortage, ATC officials have to work six extra hours every day,” says an ATC official.

Mumbai airport has a different set of problems. The airport has two intersecting runways operating, which would call for more precision in controlling the aircraft movements to avoid collision.

“Handling cross-runway operations requires specific training. These operations currently take place for around eight hours everyday at the airport. But given the expected increase in aircraft operations, once the lean season is over, the duration of cross-runway operations will have to be increased, for which we will need more trained ATCOs,” said an MIAL executive.

Hyderabad airport currently has no shortage of ATC officials but executives said that it had faced a problem in the initial two months after it started due to lack of trained manpower in handling the equipment.

“The Hyderabad airport is the first in India apart from Bangalore to have high-end air control equipment manufactured by European company Selex. Training ATC officials to handle that equipment took a little time,” said a Hyderabad airport spokesperson.

The Hyderabad and Bangalore airports have in turn put further pressure to an already thin staff as a large of number of officials from various airports were deployed at Hyderabad and Bangalore.

"Around 73 senior and even more junior ATC officials from across the country were deployed at the Bangalore and Hyderabad airports,” said an AAI official.

Waking up to the staff crunch now, AAI has sent 300 ATCO aspirants for training to the Civil Aviation Training College (CATC), Allahabad, the only such institute which imparts ATC training. People who want to join ATC services first sit for an exam conducted by the Airports Authority of India (AAI).

Those selected after the exam are sent to CATC for a training of six months to a year. The 300 new recruits are expected to join the airports by February 2009, which would ease the pressure on ATCs a bit.

However, even such ambitious recruitment plans have their problems, since there is a shortage of instructors at the training institute.

CATC has a total of 42 instructors, of whom five are retired ATC officials and the rest are officials currently deployed at various airports across the country.

"We usually deploy a skeletal staff in the college. But when the demand rises, we depute more instructors. But while we usually have a batch of around 60 students, handling a batch of 300 would require more instructors, which we are going to depute next year,” said an AAI official.

Meanwhile, a fresh batch of 96 junior ATCOs are expected to join Indian airports from September this year.

By TBM Staff | Beijing

Beijing Capital International Airport performed without fault in the lead-up to and during the 2008 Summer Olympics, with reports the ‘mass exodus’ after the closing ceremony is also progressing smoothly. This is a great credit to the planning and execution of airport officials. According to a Centre for Asia Pacific Association (CAPA),as predicted in the Monthly Essential China, 2008 is proving a challenging year for Beijing Capital International Airport Co Ltd (BCIACL), as rising costs and slowing traffic take the shine off the airport operator’s earnings. Just days before the Olympic Games' opening ceremony, on July 29, 2008, BCIACL issued a profit warning, stating net profit for the six months ended June 30, 2008 may decrease significantly as compared with the CNY 567 million net result in the previous corresponding period. The company was quite explicit in the reasons behind the expected fall in profit, including: The implementation of the restrictions on flight throughput of the Beijing Airport by the CAAC in Quarter One of 2008; The weakening of aviation transportation demand, due to the slowdown of the global economic growth; The cancellation of flights or the postponement of increase of flights by certain airlines due to the high price of jet fuel; and The substantial increase in operating costs of the Company, due to the commencement of operation of Terminal 3 (T3) and related facilities of Beijing Airport. In January 2008, BCIACL announced plans to invest CNY 26.9 billion to acquire T3 from its parent company. Traffic continues to weaken The weakness in traffic reported by BCIACL continued into July 2008. The airport operator reported (August 21, 2008) the following traffic highlights in July 2008: Passenger numbers: 4.9 million, -4.6 per cent year-on-year; Domestic: 3.8 million, -4.6 per cent; International: 1.1 million, -4.5 per cent; Cargo volume: 105,000 tonnes, +1.3 per cent; Aircraft movements: 38,900, +6.7 per cent. Domestic throughput has been bouncing around in negative territory since February 2008, but the international slowdown has occurred more recently and is of concern. Beijing Capital International Airport passenger numbers growth (% change year-on-year): August 2007 to July 2008 Source: Centre for Asia Pacific Aviation and BCIACL Undoubtedly some of this reduction can be attributed to restrictions on inbound and outbound travel during the period, but cargo volumes have also slowed, rising just 1.3 per cent in July 2008. Beijing Capital International Airport passenger numbers growth vs cargo volume growth: (% change year-on-year): August 2007 to July 2008 Source: Centre for Asia Pacific Aviation and BCIACL Aircraft movements however continue to pick up, suggesting carriers are either operating smaller aircraft more frequently to/from Beijing, or suffering load factor reductions – or both. Beijing Capital International Airport passenger numbers growth vs aircraft movement growth (% change year-on-year): January 2007 to July 2008 Source: Centre for Asia Pacific Aviation and BCIACL In contrast to Beijing, Athens enjoyed a pre-Olympics traffic surge, while Sydney’s traffic prior to its Olympics in 2000 was consistently positive. Passenger numbers growth at Sydney (2000), Athens (2004) and Beijing Capital International Airport (2008): % change year-on-year Source: Centre for Asia Pacific Aviation, Sydney Airport, Athens International airport and Beijing Capital International airport Overall, BCIACL expected to handle about 5.56 million people during the Olympic Games – or growth of around eight per cent on August 2007 throughput. It remains to be seen if traffic will hit these targets, with indications from airlines that bookings for travel during the Olympics period had fallen short of expectations. Both Sydney and Athens reported further growth in demand after the Olympics – a situation many officials in Beijing will be hoping is repeated in 2008.

To move Mumbai flights to Terminal 5 at Heathrow Airport
TBM Staff | Mumbai

British Airways (BA) has announced the launch of direct flights from Hyderabad to London from December 7, 2008. The airline is scheduled to operate five flights a week and will operate a Boeing 777 aircraft on the route. The aircraft to be deployed on the Hyderabad route will have a three class configuration with Economy, Premium Economy and Club World class. The flight from Hyderabad will connect 19 American cities from London.

The airline currently operates to five Indian cities namely Mumbai, New Delhi, Kolkata, Chennai and Bangalore. The frequency of the airline to India will increase from 43 flights a week to 48 flights a week once the Hyderabad route is operational. “India is the second largest market after US in terms of volume. We have been evaluating the possibilities of connecting Hyderabad to London for the past two years,” stated Amanda Amos, Area Commercial Manager, South Asia, British Airways.

The airline, which inaugurated its dedicated terminal (Terminal 5) at Heathrow Airport, London in March this year, will move Mumbai flights to the terminal from the 17th of next month. Bangalore flights were the first to move to Terminal 5 in July this year, whereas flights from the remaining cities of India will be moved by October 22, this year. “The Terminal had issues when inaugurated; however, these issues are solved. All the global flights including ones from India will move to Terminal 5 by October 22, 2008,” stated Amos. Internationally, the airline is currently working on a joint business agreement with American Airlines, which will allow both airlines to co-ordinate routes, pricing structures, loyalty programmes etc. BA is also working on the merger with Iberia Airlines.

From September 1, 2008, Jet Airways, will re-introduce its third service on the Delhi-Udaipur sector with a new ATR 72-500 aircraft.

Jet Airways flight 9W 3325 will depart Delhi at 1635 hrs, arriving in Udaipur at 1810 hrs. On the return leg, flight 9W 3326 will depart Udaipur at 1840 hrs, arriving in Delhi at 2020 hrs. The flight will operate six days a week, with the exception of Tuesdays.

Udaipur, home of the famous Lake Palace hotel, is one of India’s foremost leisure and conference destinations

The new flight will complement the airline’s current twice-daily services on the sector- a direct flight (9W 3317/3318) and another flight between Delhi and Udaipur, via Jaipur (9W 3401/ 3301).

Direct flight 9W 3317 departs Delhi daily at 1140 hrs, arriving in Udaipur at 1320 hrs. On the return leg, 9W 3318 departs Udaipur daily at 1350 hrs, arriving back in Delhi at 1520 hrs.

Flight 9W 3401 departs Delhi daily at 0545 hrs daily, arriving in Udaipur at 0810 hrs via Jaipur. On the return leg, 9W 3301 departs Udaipur daily at 0820 hrs, arriving in Delhi at 1045 hrs via Jaipur.

Commenting on the new service, Mr. Sudheer Raghavan, Chief Commercial Officer, Jet Airways said, “With the festive season fast approaching, we expect passenger traffic on the Delhi-Udaipur sector, one of the most popular routes on India’s travel map, to increase. We have enhanced our services on the sector to cater to the same, offering passengers Jet Airways’ renowned service and superior connectivity between Delhi and Udaipur.”

(C) Bangalore Aviation

Jet Airways has started advertising its maiden international flights from Bangalore to and from Brussels, expected to commence from October 31, 2008, and November 1, 2008, respectively, subject to Government approvals.

The flights will be operated using Jet's Airbus A330-200 aircraft. Jet Airways has 10 in its fleet of of date.

The schedule announced on the company website is :

9W-132 Depart Bangalore 01:35 Arrives Brussels 07:55
9W-131 Depart Brussels 10:05 Arrives Bangalore 00:05+1

Passengers can connect on Jet flights to New York JFK, Newark Liberty, and Toronto Pearson, and on Jet's partner airline SN Brussels to most European destinations.

The flight timings, position Jet, squarely against the European giants Lufthansa, Air France, British Airways, and Emirates, who have long held sway over Bangalore.

Download the full schedules in MS Excel format here or in PDF format here.

Manisha Singhal / Mumbai, Business Standard

For decades, more than 70 per cent of the business and first-class passenger market between India and Singapore has been controlled by Singapore International Airlines (SIA).

But home grown Vijay Mallya’s Kingfisher Airlines is all set to challenge that with daily flights to the island city starting September 18 from Mumbai, a move that has prompted SIA to respond by adding more India-Singapore flights and increasing discounts.

Kingfisher is wooing SIA’s high-margin business and first-class passengers by deploying the state-of-the-art Airbus A330 and offering premium services.

“We are positioning ourselves as a premium Indian carrier with a ‘wow’ product on the route,” said Rajesh Verma, executive vice-president, Kingfisher Airlines.

“We are aware that there are established carriers like Singapore Airlines flying for years and they have deep pockets too. But we will get loads because we will offer a competitive product at competitive pricing,” he added.

The twin configuration A330 will have just 30 seats on Kingfisher First and 187 King Class seats (which are economy seats — Kingfisher does not have a business class).

First-class passengers will also be pampered with a chef on board, professional bar-tender, a jacket ironing facility and a social area with seat massages

SIA is already responding to the challenge by launching five more morning flights a week from Delhi, taking the total to 14 services a week ex Delhi.

“We are also looking at an increase of frequencies to Bangalore but that is slated for later in the year,” said Foo Chai Woo, general manager India, Singapore Airlines.

“Our aspirations will be to operate double daily to Chennai and Bangalore just like Mumbai currently. Looking ahead, we also need to increase flights to other key cities like Hyderabad as the market develops further,” Foo added.

Singapore Airlines executives said the airline is also offering discounts of between 33 and 66 per cent on return economy fares on its new flights. This will lead to some fare wars on the route as Kingfisher also has to fill its economy seats.

Kingfisher, however, says that it does not want to get into a price war but will respond to any challenge.

Travel trade experts point out that for Kingfisher the timing is right as it will launch just as the leisure season picks up. Load factors during the festival season go up 40 per cent between October and December.

Nirbhay Kumar & Chanchal Pal Chauhan, ET Bureau

NEW DELHI: Yet another hitch is cropping up in the way of Kingfisher’s international dreams. While UB Group chief Vijay Mallya wants to fly on the global routes using Kingfisher’s call sign, civil aviation ministry officials feel that international operations of the airline can use only the Air Deccan call sign.

Mr Mallya took over Air Deccan last year and the low-cost carrier is being merged with Kingfisher. While Deccan is completing five years of service in the domestic market making it eligible to fly overseas, Kingfisher does not fulfil the eligibility criteria now.

“We had allowed Kingfisher to operate two call signs in the domestic market, anticipating that the two would merge immediately and have a common ticketing and marketing platform. But we can’t allow them to fly international on Kingfisher’s call sign as the operating permit is in the name of Deccan Aviation,” a ministry official said. He, however, said that the ministry had no objection in Deccan flying on international routes under the Kingfisher brand.

UB Group recently sought government permission to operate two brands and hence two call signs given by the International Civil Aviation Organisation (ICAO) and International Air Transport Association (IATA). While no official comment was available from Kingfisher, an UB Group official said: “We would have a common reservation platform and marketing set-up from August 29.”

The current hitch may delay Mr Mallya’s plan to launch Kingfisher on Bangalore-London sector from September 3. Any procedural delay is expected to have an impact on company as the airline has already started the booking for the proposed foreign sector. According to the UB Group spokesperson, booking for the airline’s first international sector has been overwhelming.

I have updated all the BIAL transport information in October 2008. Please use the Vayu Vajra link on the main menu bar. If you find this article useful, before jumping off the blog, I will appreciate if you can leave a comment or your thanks. Also consider subscribing to the blog via RSS or choose to receive e-mail updates when new articles are posted.

I received some very encouraging news today and kudos to both BIAL and BMTC.

Bengaluru International Airport Ltd., and the Bangalore Metropolitan Transport Corporation sat down and have arrived at an action plan which will help increase the visibility and hopefully usage of the BMTC Vayu Vajra air-conditioned Volvo bus service to and from the airport, affectionately called "VV" by Bangaloreans.

BIAL will provide better visibility at the airport to VV all the way from the airport transfer buses till the terminal exit.

A display board will be implemented at the arrival baggage collection area which will provide real-time next bus departure timing from the airport.

BIAL will also canvass the airlines to put promotional placards or flyers in seat pockets and display informational videos on in-flight entertainment systems. I exhort the airlines to pitch in.

Despite significant loss, BMTC has been enthusiastically running the VV service, and these steps by the teams at BIAL and BMTC should help strengthen the service and offer a comfortable yet economical airport transport solution.

For more information on the VV service including route lists and timings visit the Vayu Vajra site.

DH News Service, Bangalore:

Work on the much awaited six-lane elevated road between Hebbal and Yelahanka bypass to facilitate smooth traffic to and from the Bengaluru International Airport (BIA) will start from November this year.

Speaking to reporters here after reviewing the progress of various national highway development projects in the State, Union Minister of State for Shipping, Road Transport and Highways K H Muniyappa said the four-km long elevated toll road will be in addition to the eight-laning of the existing stretch between the two locations to ensure better connectivity to the airport.

The National Highways Authority of India (NHAI) will be using the latest innovations in the construction technology for the project and the six-lane elevated road will be supported on single pillars and not pillar pairs, Muniyappa said. The NHAI will also take up 10-laning (six lanes with two service lanes on either side) of the stretch between Yelahanka and the airport with room for future expansion. The total project cost is Rs 450 crore and will be completed within a two-year time-frame, the minister said.

Meanwhile, the City is in store for another mega project: a 350-km greenfield expressway between Bangalore and Chennai.

Muniyappa said the alignment work for the expressway by consultants deploying satellite imagery is on and the process will be completed by December this year.

The feasibility report will be prepared thereafter. A detailed project report on the number of lanes and its cost will be worked out after the alignment is finalised, he said.

Muniyappa said the Bangalore-Chennai expressway is one of the four expressway projects approved by the Union Cabinet. The projects will be be taken up on public-private-partnership model, he said.

NHAI officials said the cost of building a km expressway is expected to be around Rs 15 crore.

He said 668 km of roads in the State under Phase III of the National Highways Development Projects are in various stages of completion. In addition, 609 km of roads have been identified for four or six laning and these include Hospet-Bellary (80 km), Hassan-BC Road (140 km), Kundapur-Goa border (194 km), Hospet-Chitradurga (125 km) and Karnataka-Maharashtra border near Bijapur (70 km).

Muniyappa said he will be laying the foundation stone for the Rs 36.56-crore Kabini bridge in September first week.

• Four-km long, six-lane elevated road between Hebbal & Yelahanka bypass
• The toll road will be supported by single pillars and not pillar pairs.
• Latest innovation in construction technology to be used
• Project cost: Rs 450 crore (USD 110 million)
• Time for completion: Two years