Bangalore International Airport Ltd readies realty development

Bangalore International Airport Ltd (BIAL), which operates the Bengaluru International Airport, has started preparing the real estate development plan that will help raise its non-aeronautical revenues.

Going by the value of the deal with L&T-Oberoi consortium at Rs 35 crore per acre for the 4-acre hotel property on the airport land, the total price of the 515 acre real estate can be pegged at Rs 530 crore.

Isaac George, chief financial officer, GVK Power and Infrastructure, one of the partners in the consortium that runs the airport, said the plan would be implemented next year. 

It will involve developing the 515 acre real estate near the airport with an floor space index of 2.5 in a phased manner with a thrust on commercial usage such as building a maintenance, repair and overhaul facility, cargo & logistics centre, airport city, hotel and conference centre.

Once it kicks off, it will take away BIAL’s focus from aviation business to overall development of the airport city that will generate more than 50% of its revenues.

BIAL earns 34% of its revenues from non-aeronautical services such as retail and food & beverages.

George said the airport operator wants to take it up to 60% eventually to evolve a revenue model that would optimise airport resources.

“BIAL has been making profit from the first year of our operation, but a 60:40 split of non-aeronautical and aeronautical income would give a better return to our investors,” he said.

BIAL recorded an operating profit of Rs 211.5 crore in FY10.

The shift in the revenue mix of the airport would alter it to hybrid model, which would see cross-subsidisation of passenger charges by non-passenger earnings.

It may also see the demand of airlines to reduce airport levies, such as landing, parking and navigational charges, being met.

Once BIAL improves its non-aeronautical income,  the Airports Economic Regulatory Authority  may consider revising the current levies being charged by BIAL. “Our income from realty operations would evolve a hybrid-till model, which means non-aeronautical revenue would be a large part of our total revenue,” said George.

Sandip Bansal, an analyst with UBS Investment Research, said; “It (GVK) expects BIAL to remain under a dual-till model, though it could have a worst case 30% subsidisation like Mumbai, and thus evolve into a hybrid model.”