Non-aero revenues fly for airports

HYDERABAD: With airport managements beginning to view their businesses more as hospitality and retail ventures rather than just transportation infrastructure, revenues are finally showing signs of falling in line with international trends, where non-aero revenues match, if not outstrip, aero revenues.

Approximately 70% of airport revenues across the country accrue from aeronautical operations like landing and parking, passenger service fees and cargo-related services like terminal and X-Ray charges, says a KPMG study. Compared with this, internationally, a major portion of revenues are via by non-aero or cityside operations and properties accounting for between 60-80%.

However, with the advent of private sector managements of airports like the GMR- run Delhi International Airport Ltd (DIAL), and the GVK-operated Mumbai International Airport Ltd (MIAL), the revenue mix in India, too, is changing fast.

Their past experience as real estate developers of and hospitality properties, as in the case of GVK, has contributed to the aggressive focus on non-aero revenues such as land and space rentals, trading concessions, among others.

“The profitability is higher on non-aero revenues as there are no operating costs. Therefore the emphasis for airport managements has to be on increasing such revenues”, said an industry expert.

According to a KPMG study, aeronautical revenues are largely dependent on passenger traffic and tariffs, which are highly regulated and factors that are largely external and beyond the control of the airport operator. However, non-aeronautical revenue stream is a niche segment, with huge potential for exploring revenue enhancement as the rates are not regulated, it says.

Some of the most successful airports that have high revenues per passenger like Frankurt, at $49, or Hong Kong, with $22, are able to do so, thanks to high non-aero revenues. In contrast, Delhi and Mumbai log just $7 and $9, respectively. However, this could change very fast.

GVK is reportedly targeting non-aero revenues to the extent of 55% from the Mumbai airport by setting up hotels and kicking off retail ventures in a big way. The revenue mix for DIAL, too, could be in the range of 60:40 from next year, going by present indications.

According to A Subba Rao, chief financial officer, Corporate Integration, GMR Group, DIAL currently has a 35:65 non-aero to aero revenue mix. It is targeting to reverse this to 70:30 by 2010.

In 2007-08, total revenues for DIAL are estimated to touch Rs 700 crore, accounting for over 45% of the total revenues for the group, compared to just 25% now. The non-aero component is expected to be significantly higher.

For instance, duty-free alone will fetch the company close to Rs 170 crore per annum over the next three years, thanks to the duty-free contract with the Alpha-Future Group. Compared to this, duty-free revenues were put at just Rs 27 crore last year.

In addition, the group is also looking at significant revenues from advertisement contracts within and outside the terminal buildings while the finalisation of contract for the 4,300 car parking facility should bring in more non-aero revenues, Rao told DNA Money.

However, DIAL management expects significant increases from cityside or non-aero revenues, considering the capacity of the airport project has been jacked up from the earlier 22 million to 37 million passengers by 2010.

Though this means the project cost would go up by a whopping Rs 4,000 crore to Rs 8,500 crore, it also means higher footfalls and higher revenues with more passengers walking into the airport, adds Subba Rao.

Add to this the huge properties the two companies are looking to develop at the airport sites and one can understand the magnitude of business potential in the future.