Disclaimer: This article was originally published at indiatimes.com by the same author.
India has gone from having 74 airports in 2014 to having 147 airports in 2022. The target is 220 by 2024–2025, as per the Ministry of Civil Aviation.
More than Rs 98,000 crore in CAPEX (Capital Expenditure) is expected to be incurred between FY 2019-20 and FY 2024-25 for projects in the National Infrastructure Pipeline (NIP), of which Airports Authority of India (AAI) will be responsible for approx. Rs 25,000 crore and the remainder expenditure shall be paid by airport developers under Public Private Partnership mode.
In the past eight years, AAI has spent about Rs. 20,000 crore on capital expenditures meant to strengthen the Civil Aviation industry. Airports provide many facilities, from luggage trolleys to washrooms to security. But the airports have to pay operational costs, pay the borrowers, and fund capital investments too.
So, how exactly does an airport generate revenue? Interestingly, there are two broad categories by which airports generate revenue, and they are aeronautical revenue and non-aeronautical revenue.
How Airports Earn Money
The 2021 Airport Economics Report from Airports Council International (ACI) found that, on a global scale, aeronautical and non-aeronautical income was split 54:40. Additionally, non-operating revenue accounts for 5.7% of total revenue.
Since aeronautical revenues sometimes fall short of covering all operating and other expenditures, many airports rely on a wide range of non-aeronautical (commercial) revenue streams to make ends meet. The economic health of airports depends heavily on multiple sources of income other than aviation.
Aeronautical Revenue
Airports can earn aeronautical income through the fees they charge airline passengers. Airports are special enterprises that use their own distinct aviation fees. However, the following three components are common to these fees:
Per-Passenger Charges: These fees are assessed on each passenger leaving the airport and might change depending on the route used. Airline customers typically bear the brunt of these costs.
Movement Charges: Taxes for using a runway are known as "movement charges". They are calculated based on the aircraft's weight. Several airports adjust these baseline fees based on the planes' noise and emissions ratings to incentivise airlines to use quieter and environment-friendly planes.
Parking Fees: Parking fees are typically determined by the size of the aircraft and the total number of hours it occupies an apron. There may be a grace period during which airport parking is free of charge.
Airport Development Levy: When an airport is investing in large-scale capital initiatives to increase capacity, a fee called a "development levy" is often assessed (on a per-passenger basis) to assist in covering the costs of these endeavours.
Security Service Charges: Airport security fees cover the cost of providing security personnel and screening equipment to airlines.
Infrastructure Charges: Airport check-in counters, luggage conveyor belts, and boarding gates are all examples of infrastructure that incur fees for their usage.
Apart from this, other sources of revenue under aeronautical charges include air traffic management charges, ground service and safety charges, baggage handling charges, and charges on cargo facilities provided by the airports.
Non-Aeronautical Or Commercial Revenue
The term "non-aeronautical revenue" refers to money made from sources other than operating planes. Retail and concession sales, vehicle rental and valet services, parking fees, and in-airport advertising are all included in this category. Duty-free shops, bookshops, cafés, and currency exchange all contribute significantly to an airport's bottom line through concession revenue. Additionally, lounges, which cost passengers almost nothing, are a good source of income for airports.
Non-aeronautical airport earnings account for over 40% of airport incomes worldwide and can sometimes be used to balance the cost base for aeronautical charges, making them crucial to airport operators. They play a crucial role in the travel experience overall.
According to ACI's 2021 Airport Economics Report, approximately two-thirds of non-aeronautical earnings come from retail concessions (26.4%), car parking (20.9%), and property and real estate income (15.2%) worldwide.
The Indian Context
Air Navigation Services (ANS) and Airport Services are the two main categories under which Airports Authority of India (AAI) fees are organised. Airports under AAI have been divided into Major Airports and Non-Major Airports following the creation of the Airports Economic Regulatory Authority of India (AERA). AERA is responsible for establishing and enforcing fees for aeronautical services at the country's major airports, while the Ministry of Civil Aviation (MoCA) handles this responsibility for smaller airports.
In India, various aeronautical charges are different for each airport.
At present, the major Airports under AAI are:
Chennai
Kolkata
Trivandrum
Ahmedabad
Calicut
Jaipur
Lucknow
Guwahati
Goa (Civil Enclave - Intl.)
Srinagar (Civil Enclave - Intl.)
Pune (Civil Enclave - Custom Airport)
Impact Of The Pandemic
The Indian aviation industry is soaring to new heights. Statistics from February reveal that domestic air travel has increased and is virtually back to pre-pandemic levels.
According to data compiled by an industry group, domestic aviation market passenger revenue kilometres were only 2.2% below pre-pandemic levels.
When it comes to passenger load factor (PLF), India is well ahead of other major countries like the United States, China, and Japan. The PLF is a measure of how efficiently an airline is using its passenger-carrying capacity. With PLFs of 88.9% in December 2022, 87.9% in November 2022, 85.2.6% in January, and 81.6% in February, India has been the leading domestic market for the last four months.
Moreover, nearly seven crore travellers used the Delhi airport in 2019, before the pandemic, but only about three crore would use it in 2020.
In 2020-21, the Indian airline industry lost Rs. 19,564 crore, and airports lost Rs. 5,116 crore.
According to the March 2022 report by Official Airline Guide, Indira Gandhi International Airport in Delhi rose to the position of the second busiest airport in the world. The airport in Delhi jumped from 23rd to second place in a very short amount of time, from March 2019.
Conclusion
As a means of diversifying their revenue streams and mitigating the effects of traffic downturns, airports are exploring new retail and property opportunities.
Some airports have found ways to close their income gap, which is encouraging. In 2020, for instance, Bloomberg reported that Changi Airport in Singapore was luring locals who weren't flying there to shop at its stores.
According to ACI's estimations, airports around the world earn roughly 60% of their income from aviation-related sources, with the other 40% coming from retail sales, property rentals, and other sources. Airport economics depend heavily on non-aeronautical revenue, which is also an important component of the passenger experience.
We tried contacting Airports Authority of India (AAI) officials for various questions. But no reply was received.