Squeezing India's airports

Talk to any industrialist and he will tell you that the investment climate in the country hasn't been worse in recent years. As a result, the pipeline of new projects is almost empty. But the Manmohan Singh government looks too inundated with controversies to take notice. The political challenges seem to be taking up all its time. Economic concerns have taken a back seat. If the government can't improve the investment climate, it shouldn't make it worse. But that's precisely what it has done in the airport sector. Private companies have invested large sums of money in modernising the Delhi and Mumbai airports. GMR-led Delhi International Airport Ltd has plans to make India the hub of traffic between Africa and China and between Russia and Europe and Southeast Asia. But a recent decision by the Union civil aviation ministry could stymie all its plans.

The government has signed an agreement with Abu Dhabi to increase the air capacity between the two countries from 13,000 seats a week now to 50,000 in three years' time. With the expanded capacity in the sector, Etihad - Abu Dhabi's national carrier, which has just bought a 24 per cent stake in domestic carrier Jet Airways - wants to connect the country with 23 smaller Indian cities. It doesn't take great wisdom to realise what will happen in the days to come. People from these cities will fly straight to Abu Dhabi and then onwards to their destination in Europe, Africa or the United States on-board Jet or Etihad flights. There would be no need for them to come to Delhi or Mumbai. These airports could see a decline in business. Also, the traffic of wide-bodied aircraft will get diverted to the smaller airports, which is the cream of the business. An airport earns from a wide-bodied aircraft what it earns from three or four narrow-bodied ones. If this won't worsen the business prospects for the newly modernised Delhi and Mumbai airports, what else will?

Now see it from the other end of the tunnel. Abu Dhabi is expanding the capacity of its airport at a feverish pitch. It can handle 12.5 million passengers in a year right now; this number will go up to 40 million by 2018. Later, Abu Dhabi plans to raise the capacity further to 60 million. This is not a small project. The growth in traffic has to be in sync with the investments. Where will all these passengers come from? Thanks to the new agreement, they will come from Indian cities. People from cities such as Amritsar, Lucknow and Jaipur will make the expansion of the Abu Dhabi airport viable. So what if the Delhi and Mumbai airports languish?

For two years, the civil aviation ministry did not increase the bilateral traffic rights with other airlines on the grounds that it had to protect Air India, the troubled state carrier. But that concern seems to have melted away now. Also, having increased the capacity with Abu Dhabi, how will it now say no to others? An ominous precedent has been set. And everybody wants to join the party.

Qatar Airways wants the capacity with Doha to be tripled from 24,000 per week to 72,000. That's because Doha's new international airport, with the capacity to handle up to 24 million passengers in a year, will open by the end of this year. And Doha plans to raise it further to 60 million passengers in five or six years. Sharjah, from where low-cost carrier Air Arabia operates, has announced that it will also expand its airport as the current capacity of seven million passengers per annum is almost fully utilised. So, even though it is a small player compared to the other West Asian giants, it has now asked for 11,500 additional seats a week, which will nearly double its capacity to India.

Turkey has asked the Indian government to expand its weekly seat entitlement nearly fivefold - from 4,000 a week to 20,000 - as the Istanbul airport is raising its capacity from 45 million passengers per annum to 90 million passengers. And Dubai, which is home to Emirates, wants the capacity of 54,000 seats per week with India to be raised by 20,000 seats. Experts feel that this demand could go up to 50,000 seats per week subsequently. This fits in with Dubai's plan to expand its airport capacity from 60 million passengers a year to 90 million passengers by 2018. More important, Dubai is planning a new airport, the Dubai World Central, which will be the biggest airport in the world with a capacity to handle a staggering 160 million passengers a year when it is completed by 2028.

So, there are big airport hubs emerging in West Asia and Europe, not far from India. These are serious business threats to the Delhi and Mumbai airports. If the situation is not addressed, who would venture to invest in airports in India? Incidentally, the demand for higher capacity has found support from the Airports Authority of India, which operates several of these smaller airports that the West Asian airlines want to connect directly. It has spent large sums of money to modernise these airports and is of the view that direct connectivity with Sharjah, Doha or Qatar would improve their financial viability.