Airports In India: Revenue Streams And Strategies

Airports in India have been described as a “hugely capital-intensive investment”, requiring large cash flows to cover operational costs, pay borrowers, and fund capital investments. Despite this, the Indian aviation industry is soaring to new heights, with domestic air travel at pre-pandemic levels and the country on track to become the third-largest aviation sector in the world by 2026. So, how do airports in India make money? Airports in India generate revenue through aeronautical and non-aeronautical sources. Aeronautical charges include air traffic management, ground service and safety, baggage handling, and cargo facilities. Non-aeronautical revenue comes from sources such as retail, advertising, and property development.

Aeronautical and non-aeronautical revenue

Airports in India have various methods of generating revenue, which can be broadly categorized into aeronautical and non-aeronautical revenue streams.

Aeronautical Revenue

Aeronautical revenue refers to income generated from activities directly related to aircraft operations and services. This includes:

• Airline fees: Airports charge airlines for the use of their facilities, including landing fees, gate fees, and terminal fees. Landing fees are typically based on the weight of the aircraft and the distance flown, while gate and terminal fees may vary depending on the specific airport.
• Aircraft maintenance and repair services: Airports can provide maintenance and repair services to both commercial and private aircraft, generating revenue from these offerings.

Non-Aeronautical Revenue

Non-aeronautical revenue is derived from sources unrelated to aircraft operations and can often be comparable to a shopping mall. This includes:

• Retail and food concessions: Airports offer a range of retail outlets, restaurants, and cafes, which pay rent to the airport for the privilege of operating within the premises. The airport also typically receives a percentage of the revenue generated by these businesses.
• Advertising: Airports sell advertising space within terminals, on their websites, and through digital displays. Companies pay to advertise their products or services to a captive audience of travellers.
• Parking fees: Airports charge passengers for parking their vehicles in the airport parking lots, with rates varying depending on duration, location, and the level of service (e.g., valet parking or shuttle services).
• Property development: Airports can construct and lease out commercial real estate, such as hotels, office buildings, and other facilities, creating an additional income stream.
• Airport services: Airports may offer additional services such as baggage trolleys, washrooms, and other facilities for a fee.

Indian airports have seen significant growth in recent years, and with a focus on revenue-generating opportunities, they aim to become profitable centres in the future.

Passenger load factor

India's aviation industry is rapidly growing, with the number of airports in the country increasing from 74 in 2014 to 147 in 2022, with a target of 220 airports by 2024-2025. This growth has been accompanied by a significant increase in passenger load factors (PLF), a measure of how efficiently an airline utilizes its passenger-carrying capacity.

India has consistently achieved high PLFs, surpassing major countries like the United States, China, and Japan. In 2022, India's PLF remained above 85%, with 88.9% in December, 87.9% in November, and 85.2% in January. Notably, the Delhi airport witnessed a significant increase in passenger traffic before the pandemic, with nearly seven crore travellers in 2019, although this number halved in 2020 due to the pandemic's impact.

The Indian aviation industry's resilience is further demonstrated by its rapid recovery. According to the Official Airline Guide, the Indira Gandhi International Airport in Delhi rose to become the second busiest airport globally, jumping from 23rd place in March 2019. This rapid growth poses challenges for the Airports Authority of India (AAI) in optimizing revenue-generating opportunities and meeting the demands of cost-conscious Indian air travellers.

To maximize revenue, the AAI has implemented strategies such as engaging with various stakeholders, including airlines, ground handlers, tourism agencies, and local authorities. They have also focused on leveraging seasonal traffic by developing tourist huts and hotels. Additionally, the AAI aims to increase traffic flow at airports and improve the commercial exploitation of existing facilities.

While the AAI works towards maximizing revenue, it is essential to address the challenges of operational costs, borrower payments, and funding capital investments. Despite these challenges, India's aviation industry continues to thrive, and with sustained growth, it is poised to become one of the largest aviation sectors globally by 2026, according to the International Air Transport Association (IATA).

Capital expenditure and operating costs

Capital Expenditure

The Airport Authority of India (AAI) is responsible for significant capital expenditures to strengthen the country's civil aviation industry. From 2019-20 to 2024-25, the National Infrastructure Pipeline (NIP) projects are expected to incur more than Rs. 98,000 crore in CAPEX, with AAI accounting for approximately Rs. 25,000 crore. This includes modernisation efforts for old aerodromes, where AAI has entered into joint ventures and created new facilities through global bids to enhance commercial exploitation.

Operating Costs

Operating an airport incurs substantial expenses, including the cost of providing various facilities to passengers and airlines. The total annual cost of operating the Delhi Airport, for example, was Rs. 2.635 billion (Rs. 2,635 crore) in FY 2017-18. This amount exceeded the GDP of a union territory in India, highlighting the significant financial demands of running an airport.

To cover these high costs, airports generate revenue through various streams, including aeronautical and non-aeronautical sources. Aeronautical revenue includes fees charged to airlines for using the airport's facilities, such as landing fees, gate fees, and terminal fees. These fees are typically based on aircraft weight and distance flown. Non-aeronautical revenue, which has been crucial for Indian airports, includes sources such as retail, advertising, parking fees, and property development.

The number of passengers using an airport directly impacts its revenue. A higher passenger count translates into increased sales for service providers, making them willing to pay higher rent to the airport. This dynamic was evident at the Delhi Airport, where a substantial increase in passenger traffic from 2019 to 2021 resulted in higher revenue for the airport and its concessionaires.

In summary, capital expenditure and operating costs are significant challenges for airports in India. To address these expenses, airports rely on a range of revenue streams, leveraging their large passenger footfall to attract concessionaires and advertisers, while also generating income through aeronautical fees and property development.

Advertising and retail

Airports in India have a variety of revenue streams, including aeronautical and non-aeronautical revenue. Non-aeronautical revenue, such as that from retail and advertising, has been a crucial source of income for Indian airports, especially during challenging economic conditions.

Retail

Retail is a primary revenue stream for airports. Retail outlets, including restaurants, cafes, and shops, pay rent to the airport to operate within the airport premises. The more passengers an airport has, the higher the rent these service providers are willing to pay, as more passengers mean more sales. Retail and food concessions are popular with travellers, who often have time to eat or shop before their flights. Airports like Delhi and Mumbai, which are the biggest and busiest in India, can thus generate significant revenue from retail.

Airports can also increase revenue by offering a diverse range of retail and dining options, which attracts more foot traffic and translates into increased sales. Airports can further enhance the shopping experience by partnering with local artisans and businesses to bring unique, locally crafted products to airport retail spaces, providing travellers with an authentic shopping experience.

Advertising

Advertising is another significant revenue stream for airports. Companies pay to advertise within airport terminals, on airport websites, and through digital displays, such as billboards and digital screens. Airports can also offer sponsorship opportunities to advertisers. For example, Heathrow Airport in London has advertising space throughout its terminal building, and the airport receives revenue from this advertising. Airports can thus generate substantial income through advertising, which is an important source of revenue alongside other streams such as airline fees, retail, and parking fees.

Airline fees

The Airports Authority of India (AAI) organises its fees into two main categories: Air Navigation Services (ANS) and Airport Services. AAI-managed airports are further classified as Major Airports and Non-Major Airports, with the Airports Economic Regulatory Authority of India (AERA) setting fees for aeronautical services at major airports, and the Ministry of Civil Aviation (MoCA) handling the same for smaller airports.

In addition to the fees mentioned above, airports in India may also generate revenue through aircraft maintenance and repair services. This includes routine maintenance and major repairs for both commercial and private aircraft. By offering a range of services and strategically managing their revenue streams, Indian airports aim to achieve financial stability and provide an engaging, dynamic environment for travellers.

The Indian aviation sector is growing rapidly, with a record 100 million domestic flyers in 2016, according to the Centre for Asia Pacific Aviation (CAPA). As the sector expands, airports in India have the potential to become profitable enterprises, leveraging their high passenger load factors and increasing traffic.

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