Skip to main content
Log in

Discussion Paper: Airport Privatization in India

  • Published:
Networks and Spatial Economics Aims and scope Submit manuscript

Abstract

With liberalization of air travel services and the advent of low cost airlines, the Indian Civil Aviation Sector is in for a major overhaul over the next few years. As identified by the Naresh Chandra Committee, the current state of Indian airports is inadequate to handle the resulting increase in air traffic. This paper starts with a brief on the rationale for airport privatization and international experience with it, with a focus on developing countries. Gaps between Indian and international airports in some operating and financial metrics (like Non aeronautical revenue per passenger, passenger per employee etc) are used to identify possible areas for improvement in Indian airports. Finally, current modes of airport infrastructure provision in India are summarized.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. There was a major controversy related to HIAL when the government changed the terms from BOO to BOT. This led to withdrawal of the Tata group of India from the project.

References

  • Airports Authority of India, Annual Report, 2003–04.

  • Airports Council International, Europe, 2004–05

  • British Airports Authority (BAA), Annual Report, 2004–05.

  • Basso LJ (2005) Airport ownership: Effects on pricing and capacity, Sauder School of Business, Phelps Centre for the Study of Government and Business, Working Paper 2005–08.

  • Basso LJ, Zhang A (2006) Sequential peak-load pricing in a vertical setting: The case of airports and airlines.

  • Basso LJ, Zhang A (2007) Congestible facility rivalry in vertical structures. Journal of Urban Economics 61(2):218–237

    Article  Google Scholar 

  • Button K (2006) Air Transportation Infrastructure in Developing Countries: Privatization and Deregulation, Conference on Comparative Political Economy and Infrastructural Performance: The case of airports, Madrid (September 18th–19th, 2006).

  • Brussels Airport, Annual Report, 2004–05.

  • Chandra N (2003) Report of the (Naresh Chandra) Committee on a Road map for the Civil Aviation Sector. Submitted to the Government of India, November 2003

    Google Scholar 

  • Forsyth P (2002) Airport Price Regulation: Rationales, Issues and Directions for Reform, Discussion Papers No. 19/02, Department of Economics, Monash University, Australia.

  • Government of India Task Force Report, Policy on Airport Infrastructure in India (2002)

  • Government of India, Draft Civil Aviation Policy, (2000). http://civilaviation.nic.in/moca/civ_pol.html

  • Guislain P, Kerf M (1995) Concessions: The way to privatize Infrastructure sector monopolies, World Bank Report.

  • Hanaoka S, Phomma S (2004) Privatization and productivity performance of Thai airports, presented at the 8th Air Transport Research Society World Conference 2004, Istanbul.

  • Hooper P (2002) Privatization of Airports in Asia, Journal of Air Transport Management 8 (2002) 289–300

    Google Scholar 

  • Hindustan Times, Delhi airport passenger handling capacity to treble, 2006–07.

  • International Air Transport Association (IATA), 2004

  • International Civil Aviation Organization, ICAO, 2004

  • Jacob J (2005) Bangalore airport: Real estate or runway?. India Together; http://www.indiatogether.org/2005/jan/eco-blrbial.htm

  • Juan ER (1995) Airport Infrastructure: The Emerging Role of the Private Sector, Cofinancing and Financial Advisory Services. World Bank, Washington DC

  • Juan E (1996) Privatizing Airports — Options and Case Studies. World Bank, June 1996

  • LeTourneur C (2001) The bricks and mortar of global commerce. Airport World 6(6):36–40

    Google Scholar 

  • Oum TH, Yu C, Fu X (2003) A comparative analysis of productivity performance of the world’s major airports. Journal of Air Transport Management 9:285–297

    Article  Google Scholar 

  • Oum TH, Zhang A, Zhang Y (2004) Alternative Forms of Economic Regulation and Their Efficiency Implications for Airports. Journal of Transport Economics and Policy 38(2):217–246

    Google Scholar 

  • Pandit S (2006) India’s Capacity Crunch; Air Transport World. p 24. http://www.atwonline.com/magazine/article.html?articleID=1723

  • Parker D (1999) The performance of BAA before and after privatization: a DEA study. Journal of Transport Economics and Policy 33:133–146

    Google Scholar 

  • Serebrisky T, Presso P (2002) An Incomplete Regulatory Framework? Vertical Integration in Argentine Airports; 37th Meeting of the Argentine Political Economy Association.

  • Sharma, RT (2007) Coming up: India’s big airport cities; Rediff news.

  • Silva G (1999) Private Participation in the Airport Sector, World Bank Report.

  • Unique Zurich Group, Annual Report, 2004–05.

  • Varrkey B, Raghuram G (2001) Public Private Partenership in Airport Development — Governance and Risk Management Implications from Cochin International Airport Limited ,IIM Ahmedabad.

  • Vienna Airport, Annual Report, 2004–05.

  • Vogel HA (2005) Privatization and Financial Performance of European Airports. Conference on Applied Infrastructure Research, Berlin

    Google Scholar 

  • World Bank, Private Participation in infrastructure (PPI) and airports database. http://ppi.worldbank.org/explore/ppi_exploreSubSector.aspx?SubSectorID=5

  • World Bank (1996) Privatizing Airport — Options and Case Studies; Public Policy for the Private Sector.

  • Zhang A, Zhang Y (2006) Airport capacity and congestion when carriers have market power. Journal of Urban Economics 60(2):229–247

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Manuj Ohri.

Additional information

The author recognizes the guidance received from Dr. Simrit Kaur, Faculty of Management Studies, University of Delhi.

Appendices

Appendix 1 — Benchmarking of airports under AAI control

In this Appendix the airports under AAI (Airports Authority of India) (referred to as Indian Airports) control are benchmarked with some international airports. Data on a number of revenue, profit and input/output based factors were extracted from annual reports of publicly listed airports.

It should be noted that consolidated figures for all Indian Airports (AAI controlled airports) were used as corresponding figures for individual airports were not available. Unique Zurich, Vienna, Brussels airport and BAA were used for the analysis. The choice of airports was largely based on availability of data.

The Results

Some parts of the appendix have been reproduced from the body of the text to maintain continuity. The international airports used as benchmarks were chosen based on data availability rather than strictly on the basis of suitability. Hence, the impact of differences in catchment area and other locational factors on the metrics has not been accounted for. Further, AAI has been compared to certain individual airports (except British Aviation Authority). Depending on the revenue and cost contribution of Delhi and Mumbai airports, the aggregate statistics for all airports will either overstate or understate the inefficiencies for these airports.

Parameters under the following broad headings were analyzed for the purpose of the benchmarking exercise — Revenue, Profit and Input/Output based factors. For the purpose of comparison, all factors were converted to an indexed value.

2.1 Revenue Based Factors

Figure 3 shows the comparison of the airports across different revenue based factors:

Fig. 3
figure 3

Revenue based factors for analysis of airports

Relatively speaking, Indian Airports have:

  • A high percentage of aeronautical revenue — This shows the high dependence of Indian Airports on aeronautical revenues and the low level of development of non aeronautical streams of revenue.

  • Low commercial revenue per passenger — This points towards a low level of development of non aeronautical streams of revenue.

  • Very low revenue per employee — AAI, being a government controlled organization, cannot take tough labour related decisions based on economical considerations. Hence, we see surplus labour at Indian Airports.

2.2 Profit Based Factors

Figure 4 shows the comparison of the airports across different profit based factors.

Fig. 4
figure 4

Profit based factors for analysis of airports

Relatively speaking, Indian Airports have low operating profit per passenger mainly because of a low revenue per passenger.

2.3 Input/ Output Based Factors

Figure 5 shows the comparison of the airports across different input/output based factors:

Fig. 5
figure 5

Input/ Output based factors for analysis of airports

Relatively speaking, Indian Airports have passengers per employee, low staff cost per employee and a high percentage of staff cost in total cost.

Based on the above factors, the following major developments for the business models of Indian airports can be forecasted:

  • Workforce rationalization — As the airports get privatized, there would be increasing pressure to increase efficiency. This would lead to cost cutting. As staff cost as a percentage of total cost is high for Indian airports (despite low staff cost per employee), staff costs would be one area which would see a downward revision. In the recent privatization of Delhi and Mumbai airports, this was a major area of concern as the unions of both airports went on a strike protesting against privatization. This is in spite of the government including a clause in the RFP (request for proposal) stating that the Joint Venture (that wins the contract) had to retain at least 40% of the workforce.

  • Increasing contribution of non aeronautical revenues — As the mindset towards airports shifts from being infrastructure providers to businesses, airport operators would look for new sources of revenue generation. As non aeronautical revenues have proven to be a good source of revenue for airports worldwide, Indian airports are bound to move in this direction.

Appendix 2 — Figures used in the benchmarking of airports

All figures in USD unless otherwise stated

Unique Zurich group

Vienna

Indian Airports

Brussels Airport

BAA

Revenue based factors

     

 Total revenue per passenger

27.01

26.22

12.4

22.95

23.75

 Total revenue per ATM (Air Transport movement)

1751

2275

944

1384

2566

 Aeronautical revenue as percentage of total revenue (%)

54.22

77.12

77.33

62.66

39.15

 Commercial revenue per passenger

8.47

5.98

1.54

8.46

13.02

 Total revenue per employee

331,047

153,675

29,761

444,903

269,807

 Profit based factors

     

 Operating Profit per passenger

4.03

5.66

2.56

3.56

7.94

 Return on capital employed (ROCE) %

3.01

11.66

11.71

2.58

6.05

 Earning as a percentage of turnover (%)

0.67

20.32

11.97

7.01

30.12

 Revenue to expenditure ratio

0.94

0.91

1.26

1.06

1.48

 Input/Output based factors

     

 Total cost per passenger

28.84

28.82

9.83

21.66

16.02

 Total cost per ATM

1,869

2,500

749

1,306

1,731

 Operating cost per passenger

14.62

20.15

3.23

20.45

12.81

 Staff cost as % of total operating costs (%)

22.77

38.43

35.49

20.26

44.08

 Passengers per employee (Nos.)

12,256

5,861

2,401

19,388

11,363

 Staff costs per employee

80,483

64,906

8,379

85,085

64,167

 Staff costs per passenger

6.57

11.08

3.49

4.39

5.65

  1. Airports Authority of India (2003-04); British Airports Authority (BAA) 2004-05; Brussels Airport 2004-05; Unique Zurich Annual Report 2004-05; Vienna Airport 2004-05

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ohri, M. Discussion Paper: Airport Privatization in India. Netw Spat Econ 12, 279–297 (2012). https://doi.org/10.1007/s11067-009-9117-8

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11067-009-9117-8

Keywords

Navigation