Airport Authority of India incurring losses on 93 of its airports

Some of these airports are operational and recognised on AAI’s accounts even though airlines don’t operate from them.

By Anirban Chowdhury, ET Bureau | Updated: Aug 20, 2014, 03.29 AM IST

MUMBAI: The Airports Authority of India has been incurring losses on 93 of its airports, even as the state-owned agency plans to build and operate 50 low-cost airports in the country in the next few years.

The overall plan, according to the latest Economy Survey of the newly elected BJP government, is to build 200 budget airports in the next 20 years.

For 2012-13, AAI posted a loss of Rs 1,547 crore on airports such as Amritsar, Aurangabad, Jaipur, Lucknow, Varanasi and Bhopal apart from numerous small ones, according to the latest government figures. The loss was up 41% over the previous year. Some of these airports are operational and recognised on AAI’s accounts even though airlines don’t operate from them. The figures for the financial year ended March 31 weren’t available but sources said AAI would have incurred a loss last year as well.

Also, growing losses have forced airlines to cut down their operations and stop flying to various cities. This has impacted traffic at airports. Their financial condition has also left little room for Indian carriers to experiment with new air routes and destinations. Airlines now fly to a total of about 70 airports, down from 106 a few years back. In the last decade, the entry of new carriers had opened up new air routes but these weren’t profitable for them.

To be sure, AAI is profitable but that’s because the numbers are bolstered by revenue it gets from its share in privatised airports. It posted a net profit of Rs 797 crore in FY13, up 8% from the year before.

Revenue rose 15%. It earned Rs 1,101 crore out of its 26% share of various tariffs heads such as airport development fees, user development fees and passenger service fees at the Delhi, Mumbai, Bengaluru and Hyderabad airports, which are managed by the GMR and GVK groups. This was up 16% on year.

AAI can’t be held to the same standard as private airport operators, said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG. “One should not judge the AAI’s financial performance vis-a-vis its private sector counterparts. AAI is a sovereign entity responsible for providing air connectivity in the country, much like the Railways, NHAI (National Highways Authority of India) and India Post,” Dubey said.

“Going forth, it should lease out its top 10 profitable airports to the private sector and plough back the revenue share into creating no-frills airports (NFAs) in areas where the private sector may not venture. The choice of location of the NFAs should be done after detailed discussions with airlines and comprehensive viability analysis rather than under political pressure.”

Meanwhile, the Prime Minister’s Office has asked the civil aviation ministry to build five of the new planned low-cost airports during the current financial year. The airports will be built by AAI without any private participation. The airports will be barebones facilities with no conveyor belts, arrival lounges or even airconditioning.

Passengers will have to be check in their luggage manually. One air traffic control (ATC) tower will cater to a number of such airports. The plan is to spend Rs 50 crore on each such airport. “Smaller airports, especially in the numbers that are being proposed, cannot be seen as a profitmaking business proposition.

The government will be doing it to incentivise air travel to far-flung areas. But do remember that while there is a huge potential for air travel in India, there is no dire necessity for it across the country, thanks to an efficient railway and road network,” said Peeyush Naidu, senior director at Deloitte.

“Also airlines won’t include a route in their network if it continues to make losses over a period of time. They can't afford that when the industry is making huge losses. So the idea should be to incentivise a business model that works, maybe more regional carriers who will have code shares or similar agreements with the bigger airlines,” Naidu said.

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