Privatisation of Airports in India

Privatisation of airports in India aims to improve efficiency, infrastructure, and passenger services. Read about its meaning, key features, benefits, challenges, major players, and impact on India’s aviation sector.

Table of Contents

Context

The Ministry of Civil Aviation has sent a proposal to the Public Private Partnership Appraisal Committee (PPPAC) for in-principle approval of the third round of airport privatisation.

What is the Process of Privatising Airports?

Selection of airports: Chosen from Airports Authority of India (AAI) airports handling 1–1 million passengers annually.
- Based on traffic growth potential, investment needs, and proximity for bundling.
Bundling strategy: Metro airports paired with non-metro airports to enable cross-subsidisation.
PPPAC appraisal: Examines:
- Revenue-share vs per-passenger fee models
- Cap on number of airports per bidder
- Tariff structure and User Development Fee (UDF)
- Land monetisation for non-aeronautical revenue
Cabinet approval: Required before issuing Request for Proposal (RFP).
Bidding and concession: Airports leased to private operators for long-term operation, development, and maintenance.
- Regulated by Airport Economic Regulatory Authority (AERA).

Pros of Airport Privatisation

Infrastructure modernisation: Faster expansion of terminals, runways, cargo, and passenger amenities.
Efficiency gains: Professional management, better technology adoption, and improved service delivery.
Fiscal benefits: Monetisation of brownfield assets unlocks capital for new infrastructure.
Cross-subsidisation: Bundling allows financially strong airports to support smaller regional airports.
Capacity augmentation: Supports India’s target of 850 million passengers per annum (mppa) capacity in the next five years.

Cons and Concerns

Risk of monopoly / duopoly: Concentration of airports with a single corporate group reduces competition.
- g., The Adani Group currently operates 8th major airports, including 6 privatised airports and the strategic Mumbai and Navi Mumbai airports
Rising costs for passengers: Sharp increases in User Development Fee, landing charges, and disembarkation fees after privatisation.
- g., At Thiruvananthapuram International Airport, the User Development Fee (UDF) for domestic passengers increased from ₹506 to ₹770 in the first year after privatisation, with further hikes approved subsequently.
Higher airline operating costs: Increased airport charges ultimately passed on to passengers.
- g., Post-privatisation tariff revisions at airports such as Ahmedabad Airport and Jaipur Airport saw significant increases in landing and parking charges.
Weak bargaining power: Airlines and service providers have limited negotiating leverage against dominant operators.
- g., Mumbai–Navi Mumbai airport system.
Service quality concerns: Complaints related to congestion, accessibility, high taxi fares, and forced ancillary charges.
- g., Telecom operators complained of “extortionary charges” and denial of right of way at Navi Mumbai International Airport for installing in-building cellular infrastructure.
Regulatory challenges: Under-reporting of non-aeronautical revenues reduces cross-subsidisation benefits.

Way Forward

Ensure competition safeguards: Impose a cap on the number of airports per operator to prevent monopolisation.
Strengthen tariff regulation: AERA should tightly link tariff hikes to service quality benchmarks.
Transparent revenue assumptions: Accurate projection of non-aeronautical revenues to reduce passenger burden.
Service-delivery-linked penalties: Enforce proposed 5% tariff reduction for failure to meet service benchmarks.
Balanced privatisation strategy: Combine privatisation with strong public oversight and periodic reviews.
Holistic aviation ecosystem: Parallel focus on financially robust airlines, regional connectivity, and last-mile access.