Transforming one of India’s metro gateway airports into a hub airport deserves consideration as the aviation market puts the novel coronavirus pandemic behind it and passenger demand surges.
Today, India is the third largest domestic aviation market in the world, next only to the United States and China. Consumer confidence in air travel has helped the industry recover faster than anticipated. Some airports have already breached or are close to matching the traffic demand seen before the pandemic.
Besides, in view of the surge in passenger demand, India’s airport operators have planned investments upwards of ₹90,000 crore to enhance capacity over the next four years or so.
To boot, the conditions are just right for building a hub airport.
The concept
What exactly is a hub airport?
A hub airport is one served by a multitude of airlines, connecting several airports through non-stop flights.
Historically, airports were designed keeping the requirements of the origin/destination passenger in mind. This meant operating separate arrival and departure terminals.
Over time, better space-utilisation concepts led to the construction of a common passenger terminal with arrival/departure flows segregated on different floor levels. This spawned a new segment of passengers — transit flyers, who use the airport only to connect flights.
A typical hub airport operates on the concept of waves. A wave of incoming flights arrives and connects with another wave of outgoing flights that departs an hour or two later. ‘Hubbing’ allows for the maximum combination of flight pairs and a wider choice of destinations and frequencies for connecting passengers.
Importantly, while an aspiring hub looks at attracting foreign airlines to widen the number of direct point-to-point connections, it thrives on airlines nestled (based) at that airport, which dedicate more resources, aircraft, crew, manpower and infrastructure, and are enablers of growth. Some global examples are (Hub airport/Home airline): London/British Airways; Frankfurt/Lufthansa; Atlanta/Delta Airlines; Dallas/American Airlines; Singapore/Singapore Airlines; Paris/Air France; Dubai/Emirates; Chicago/United Airlines; New York/American Airlines and Delta Airlines; Hong Kong/Cathay Pacific.
Why it is a win-win for all. A hub creates economies of scale for the airport and airlines alike.
The airport benefits from increased direct connectivity with other airports and more revenue opportunities due to increased passenger footfalls. Improved passenger throughput has a knock-on effect on the wider airport ecosystem, such as aero and non-aero service providers at the airport, including cargo and ground handling, fuelling, retail and duty-free, vehicle parking, aircraft maintenance repair and overhaul (MRO), and fixed-base operation (FBO) services at the airport.
Airlines, on their part, get to serve city pairs that are otherwise economically unviable for non-stop flights.
Frequent fliers and business travellers get greater choice and flexibility with flights, destinations, and service frequencies, as well as lower ancillary costs, such as avoiding the time and cost of an overnight stay.
A force multiplier
From the government’s perspective, an airport acts as a force multiplier with economic activity, jobs and employment, investments, business, trade, commerce, tourism, culture, and benefits other sectors of the economy. It is well established that the creation of one job in the aviation sector affects the creation of up to six jobs in allied sectors, such as tourism and hospitality.
All this propels the economic and social development of the city and its inhabitants, too.
Let us look at considerations for a hub airport in India. There are three basic requirements for becoming a major airport hub, whether domestic or international, i.e. sufficient local consumer demand; good geographic location, and necessary infrastructure to support high-volume traffic. In India’s case, the first two requirements are largely addressed and the focus is rightly on addressing the third requirement.
An India perspective
In the context, here is a look at the favourable factors, impediments, and opportunities.
In considering the factors in favour: India has the largest diaspora, or transnational community, at 18 million people across all six continents and regions (based on the UN Department of Economic and Social Affairs, Population Division – Report on International Migration 2020); India is located on busy international air corridors that connect Europe, Africa, and the Middle East with Asia, making it ideal for a transit hub and alternative/diversion/fuel stop/technical stop; being the fifth-largest economy in nominal GDP terms (IMF World Economic Outlook Database April 2019) and the seventh largest by land mass, India can support development of more than one hub airport; airport business in India is largely monopolistic, with no competing airport in the same urban area; airport development in India is a regulated business with minimum downside risk for investors; airport tariff determination under the Airports Economic Regulatory Authority of India is a robust, fair, and transparent process
Let us consider the impediments. There are capacity constraints at major airports because of a lack of landing slots, especially during peak hours; the Airports Authority of India Act (AAI), 1994 constrains the AAI/airport operators from commercially exploiting available land for non-aeronautical activities; a ‘high cost-low fare’ operating environment and increased competition hurts airline balance sheets and financials, which hurts the growth of airports; India has 34 operational international airports, yet smaller international airports are either completely left out or have very limited scope in starting international flight operations; rationalisation of duties and taxes, such as bringing aviation turbine fuel under the ambit of goods and services tax, will enable airlines to reduce costs and emerge financially stronger, thereby benefiting airports
And, finally, the opportunities. There is a need to develop inter-modal connectivity (rail/road – air) and logistics support infrastructure (warehousing) as a part of the future airport master plans to fully exploit potential with cargo and freight; aspiring hub airports can partner with tier-2 and tier-3 airports in their catchments; airports can broaden their revenue base by developing allied service capabilities, such as cargo handling, aircraft MRO and FBO.
Jagannarayan Padmanabhan is Director and Practice Leader – Transport and Logistics, CRISIL Infrastructure Advisory
