In face of losses, low-cost airports not a good idea By: Rhik Kundu | December 10, 2014 12:37 pm SUMMARY Low-cost airports may not be a good idea when most airports are running in losses Over 90 airports operated by the state-controlled Airports Authority of India (AAI) have been incurring losses, primarily from low air traffic. Over 90 airports operated by the state-controlled Airports Authority of India (AAI) have been incurring losses, primarily from low air traffic. While the central government’s plan to develop as many as 50 low-cost airports is still being worked out, over 90 airports operated by the state-controlled Airports Authority of India (AAI) have been incurring losses, primarily from low air traffic. Responding to questions on loss-making airports, minister of state for civil aviation Mahesh Sharma, told the Lok Sabha late last month that the losses to AAI-operated airports are primarily because of low air traffic movements, resulting in lesser aeronautical revenue, low non-aeronautical revenue potential and basic operating expenditure on account of regulatory/IATA and security requirements. “The Airports Authority of India (AAI) has initiated several steps to make the loss-making airports viable and profitable by development of cargo activities, enhancement of non-aeronautical revenue through revision of rates and awarding of contracts through master concessions, allowing flying schools at non-operational airports, encouraging maintenance, repair and operations (MRO) activities and revision of base rates”, Sharma said. A senior AAI official told FE that some of the AAI-operated airports incurring losses are at Patna, Indore, Ahmedabad, Amritsar, Aurangabad, Jaipur, Lucknow, Varanasi and Bhopal. “Some of the airports operated by the AAI in remote areas are operational and recognised on the authority’s accounts even though most airlines don’t operate from them,” the official said, not wanting to be named. ”This has added to the losses.” Interestingly, the new government’s plans to build 50 low-cost airports involve developing infrastructure for air connectivity in remote areas. Although, the ministry of civil aviation has written to the finance ministry to allow the AAI to raise funds by issuing tax-free bonds for developing budget airports, there is no clarity yet on how these airports, once developed, are going to earn revenues, considering that AAI-operated airports at remote areas are already posting huge losses. An analyst tracking the aviation sector, who didn’t want to be identified, told FE that though the government’s plan to develop low cost airports sounded ambitious, its success would largely depend on the financial condition of carriers. “Huge losses have forced airlines to trim down operations and fly to fewer airports. Not many airlines want to experiment with new routes, especially to remote destinations”, the analyst, who works for a foreign brokerage, said. Today, most commercial airlines, except for the national carrier Air India, operate in sectors that register a high load factor. In the past, several airlines have stopped flying to routes which didn’t generate enough load and yield. Recently, SpiceJet has also cut several routes as it looks to turn around its operations. According to AAI officials, commercial airlines in India currently fly to about 70 airports in the country, down from about 95-100 a few years ago. “It’s not in the airlines best interest to fly on routes that yield low load factor and are loss making,” said an airline official who declined to be named. ”The new government’s initiative of developing 50 low-cost airports is ambitious. But, will it help increase the profits of the AAI? I don’t think so,” the official added.
Posted on: Wed, 10 Dec 2014 12:41:26 +0000
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