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KPMG report on airports in India says infrastructure development still on news
24 October 2008

With the global aviation sector going through one of the worst times it has ever seen, a report by consulting firm KPMG has said that the story of aviation infrastructure development in India is still on track.

The Indian Aviation is presently reeling from first being hit by the global spike in the price of oil that pushed the price of crude to $147 in July 2008, and in the bargain drove up aviation turbine fuel prices that questioned the viability of many an airline. Thereafter, the increasingly bleak economic situation in the global economy has hit the industry hard, with traffic declining and costs spiralling upwards.

Airlines in India have been impacted severely, as the taxation structure on jet fuel ensures that the price of the commodity is higher than anywhere else in the world.

Typically, infrastructure development precedes industry growth. However, for India the reverse is true, with the airline industry posting solid growth numbers for much of last year, post which infrastructure bottlenecks brought to light by the explosive growth in demand for air travel are now being addressed.

The ongoing economic downturn is now providing an opportunity for the country to bridge the gap between demand and supply in airport infrastructure, during the 'lean period' inadvertently brought on by the fall in demand precipitated by the global economic slowdown.

The KPMG report titled 'Indian Airports Global Landing Ground' has attempted to map the journey of airport development by analysing the roles played by key stakeholders, along with an examination of the challenges faced at a micro and macro levels, and the opportunities that the current landscape presents.

The report says that a new urban infrastructure form is on the anvil. A cluster of aviation-oriented businesses around airports and transportation corridors would emerge as 'Aerotropolis', or airport cities.

The airport cities would have retail malls, leisure and culture centres, logistics and air cargo, hotels and entertainment and is surrounded by clusters of aviation related enterprise.  The KPMG looks at how the 'low cost airports' and 'non operational airports' have the potential to be the next step for the Indian airports industry.

Besides enhancing connectivity across India, these airports would also help rationalise costs for airlines and decongesting traffic at regular airports. KPMG's report suggests these airports shall provide much-needed relief to low cost carriers, whose financial position has been particularly impacted by the rising price of jet fuel and other operational costs.

These airports shall follow the 'no frills' concept currently offered by low cost carriers.

The KPMG study shares an optimistic outlook for the future of airport retail. Findings of the study suggest that the takers for airport retail are spread across industries and service providers, with passengers being key stakeholders in the airport development process in the country. As end users of the facilities and drivers of revenue growth, passengers are being kept central to most infrastructure development, even though the report highlights their lack of representation in the development process and brings out the challenge faced here.

However, the economic slowdown could be a double edged sword for the developers of this infrastructure. Impacting the mechanism of financing the growth, the absence of significant liquidity in the market will most likely see the Airports Authority of India (AA) and private airport developers rely more on internal accruals and equity for financing these projects. Their dependency on external debt would be largely limited on account of the economic slowdown.

Low cost carriers, which put air travel within the grasp of the average Indian, have underpinned the Indian aviation growth story. Presently, less than five per cent of India's population travels by air, pointing to a large untapped market that is likely to propel the second chapter in the growth of Indian aviation.

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KPMG report on airports in India says infrastructure development still on