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NON-AERO REVENUE: A STUDY ON THE PRICE PERCEPTION OF THE PASSENGERS IN RETAIL

PROJECT REPORT Submitted in partial fulfillment of the requirements for the award of the INTERNATIONAL EXECUTIVE MBA IN FINANCE

BY DIGVIJAY GANESH.K UBI/MBA/IE/JAN11/2545

Under the guidance of MS. SHOBA D MFM (FINANCE)

PONDICHERRY UNIVERSITY HYDERABAD

DECLARATION

I, Digvijay Ganesh. K hereby declare that this project report titled Non-aero revenue: A Study on the price perception of the passengers in Retail submitted in partial fulfillment of the requirement for the International Executive MBA in Finance is my original work and it has not formed the basis for the award of any other degree.

Digvijay Ganesh.K Place: Hyderabad Date: 12th Nov 2011

ACKNOWLEDGEMENT If any of us honestly reflects on who we are, how we got here, what we think we might do well, and so forth, we discover a debt to others that spans written history. The work of some unknown person makes our lives easier every day. I believe it is appropriate to acknowledge all of these unknown people; but it is also necessary to acknowledge those people I know who have directly shaped my life and work. I thank Ms.Shoba, who freely and cooperatively offered her time and expertise in guiding me, providing information, reviewing my work and putting up with my incessant and often unreasonable demands on his time. I express my gratitude to Jaro Education, Mumbai for providing me an opportunity to work on this project as a part of the curriculum.

TABLE OF CONTENTS
1. Company Profile---------------------------------------------------------------------5

2. Introduction------------------------------------------------------------------------------ 7 3. Research Objectives------------------------------------------------------------------ 8 4. Literature Review-------------------------------------------------------------------5. Research Methodology------------------------------------------------------------6. Charges on the decrease---------------------------------------------------------8 9 9

7. Sources of Revenue ---------------------------------------------------------------- 10 8. The new Airport----------------------------------------------------------------------- 11 9. The low cost carrier------------------------------------------------------------------ 12 10. Situation Analysis & Key issues------------------------------------------------- 18 11. Responsibility for new investments--------------------------------------------- 37 12. Recommendations------------------------------------------------------------------- 46 13. HIAL Market Research Report---------------------------------------------------- 48 14. Research Analysis------------------------------------------------------------------- 57 15. References----------------------------------------------------------------------------- 65

1.Company Profile
The Swaziland Development Finance Corporation (FINCORP), formerly known as the Enterprise Trust Fund (ETF) is a Development Finance Institution that was created by His Majesty King Mswati III in November 1995 with the main objective of addressing the problem of poverty and rural unemployment in Swaziland. Initially and in line with its developmental mandate the organization was registered as a Special Fund under the Finance and Audit Act No. 18 of 1967 which registration was approved by Parliament. It was officially named Swaziland Development Finance Corporation (FINCORP). In the short to medium term Government intends to reduce her controlling interest in the company in order to allow partial autonomy. The objectives of FINCORP are: . To finance and promote the development of Swazi-owned Enterprises; To efficiently and effectively contribute to the alleviation of rural poverty among Swazi citizens. To support the expansion of loan financing to SMEs; To support the provision of business advisory services, training, monitoring, technical transfers and development of other products and services for SMEs; To facilitate access to institutional development services and increase the long-term capacity of Swazi owned enterprises. The Shareholders The Government of Swaziland which holds 70% of the shares, is represented by the Ministry of Finance. It is however Governments future plans to sell part of her shares to private investors in order to allow autonomy to the Corporation which is expected to result in greater outreach, impact and further improve the level of service delivery to the SME sector through better products and improved technology. Tibiyo Taka Ngwane, which hold the 30% shares, is a national investment and

development oriented organization who has partners with local and foreign investors in several business sectors in the country. Tibiyo Taka Ngwane invests either in the form of equity or loan finance. It is a unique business entity in that the former King, His Majesty Sobhuza II created it on the year of independence, on 19 August 1968, by Royal Charter, basically to complement the Swaziland Government's national development efforts. The organization has created more than 20 000 employment opportunities through its investments. Methodology of Service Delivery At inception in 1996 the then trust was mandated to on-lend through intermediaries such as Associations, Co-operatives and formal financial Institutions like banks but it soon became apparent that such a methodology was ineffective for the following reasons: Some groups were formed specifically to access funding with no group dynamics apparent or any visible peer pressure amongst group members thus the resultant disintegration of groups The trust thus found itself chasing individual members at a high cost. Good payers in a group were thus penalised as they could not access funds anymore. The timing of cash-flow requirement for each member in a group was different given the nature of his/her project, but because one loan was issued to the entire group with the same repayment terms, they all had to ensure repayment was made in line with the loan to the intermediary to the detriment of individual projects. It is for the above reasons that the conscious decision was taken to introduce individual lending together with the existing group based or intermediary lending. This was done in 2003. This has enabled the business to grow aggressively over the past three years from an asset base of E44 million (USD $5.79) to E225million (USD $29.61) (16/10/2006 rates) with further growth envisaged as laid out in the latest strategic planning document.

2.

Introduction

Airports are stable providers of infrastructure assets, even in the sometimes turbulent aviation industry. While airports and airlines are intrinsically linked and rely on one another to operate efficiently, they are based on different business models. Airlines are able to move quickly to respond to changes in traffic flows, by leasing or retiring capacity. Airports, on the other hand, must make long-term planning decisions to safeguard capacity sometimes 50 years into the future. In spite of this, through efficiency gains in operations, staff productivity and venturing into new revenue streams, airports have held user charges at a stable 4% of airline operating costs for over two decades. All the while, airports have invested to meet the needs of a burgeoning aviation industry and developed new business models. Over the past 30 years, airports have evolved from being simply municipal or Government infrastructure providers into sophisticated and business-oriented service providers. As in every industry the pressure to operate efficiently is constant and arises from customers and stakeholders alike. In recent years airports have played a critical role in keeping air traffic affordable and stablising operating costs for airlines. Or, as it was the case after 11 September, 2001 and SARS, have shown high flexibility in dealing with their airlines customers to relieve some of the financial pressure they came under

User charges Airports charge their airline customers for the facilities they use, following the UNs International Civil Aviation Organisation (ICAO) accepted standards. The landing and airport charges reported by the air carriers to ICAO include all charges and fees related to air transport operations that are levied against the air carrier for services provided at the airport.

These include: landing charges; passenger and cargo fees; security, parking and hangar charges; and related traffic operation charges (excluding fuel and oil throughput charges) They exclude those airport passenger-related charges paid by the passengers, and which may be collected by the air carriers at the point of sale, as these are not included in the profit and loss statement of the air carriers concerned. Cost containment is challenging for airport operators as a result of their expensive asset base which must be maintained and even enhanced over time to adapt to a changing customer base. Indeed, depreciation and amortisation of airport assets account for up to 30% of expenses on the profit and loss statement. At the same time, airports are being required to pay extensive costs for enhanced security and the introduction of new technology.

3.Research Objectives:
To study & understand the customer behavior on Prices charged at the airport. To explore unidentified Non aero areas to amplify the sales revenue. To understand consumer behavior in Retail areas through customer feedback & Questionnaires. To identify gaps in Retail offerings by comparing with other international airports.

4.Literature Review:
While the selection of topic and its refining for the purpose of this thesis has been done primarily on consultation with my guide, there are certain literature references that I would like to quote that helped me come up with a probable hypothesis and its formation into a synopsis.

5.Research Methodology
Research would be carried through direct interactions with the passengers as well as the customers present in the Terminal building and at the Landside areas respectively. Direct interactions would be done through questionnaires and interviews which would help me in knowing the perceptions of the passengers and customers as well. Comparative Analysis would be done by comparing with international airports in India like Delhi, Mumbai & Bangalore

6.

Charges on the decrease

Figures collected and analysed by ICAO demonstrate the airport industry is healthy and clearly committed to efficiency:

In 2009, the income of 86% of airports worldwide covers or exceeds their expenses. Only 14% of airports generated a loss. Expenses on landing and associated airport charges incurred by air carriers have gone up by only 1.4% annually on average between 2000 and 2009.

From 2008 to 2009 total airline expenses incurred on airport charges rose by 6% remaining below the 6.6% increase in actual passenger traffic. In terms of unit costs (cents per available tonne / km) the average annual growth rate of airport charges since 2000 has been only 0.6% while total airline operating expenses increased by 1.7% annually during this period. That shows that airport charges have actually gone down.

Consequently, airport charges as share of airline operating expenses have constantly decreased over the past 10 past years to 3.8% in 2009.

During the same period the global airport industry has invested over $US100 billion in its infrastructure and continues to plough money into existing and new facilities. ACI estimates that capital expenditure committed to at airports in 2007 will exceed $US40 billion.

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7.

Sources of revenue

There are two distinct forms of income and expenditure at an airport: aeronautical and non-aeronautical. In broad terms, the aeronautical side of the business is made up of fees paid for the traditional core airport-related activities such as the provision of runways, aircraft stands, facilitation and security areas and the associated staff to undertake such activities. The non-aeronautical revenues come from activities that are undertaken on top of this core business, such as retail, parking, other concessions and rentals. At medium and large airports this revenue may account for over 50% of the total income, growing at much faster pace than aeronautical income or traffic figures and producing greater profit margins. The additional income from non-aeronautical revenue is a key component in enabling airports to generate funds for the significant investment they must undertake in terminal and airfield expansion. The commercial revenue stream is essential for positive credit ratings and the airports ability to attract investors, private or public (and the associated financing of large infrastructure projects). Without this revenue, airports would be considered less attractive investments.

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8.The New Airport

At Detroit Metros North Terminal, each gate is designed identically and each gates carrier is identified via a flat screen panel, enabling the gates to be used by multiple carriers. This flexible design increases the frequency of gate turnaround rather than physically expanding to meet increased air traffic demand. (Credit: David Joseph) New challenges in the aviation industry confront executives every day. Airlines-faced with roller-coaster fuel prices, tightened credit, and declining ticket sales-are forced to look at new business strategies that include consolidation, bankruptcy, and reduction in seat capacities. Meanwhile airports, reacting to these industry trends, scramble to accommodate new carriers demanding space in their terminals. Both sectors of the industry - airlines and airports - are working hard to develop strategies that will carry them through these difficult times. Ultimately, as airlines adapt to the new realities of air travel, airports will reinvent themselves and their business strategies. The result will be a new airport that sets the stage for an agile airline industry that meets the needs of passengers, airlines, and airports alike.

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9.The low-cost carrier

Detroit Metros North terminals linear design enables aircraft to land via taxiway and pull directly into their respective gates. The linear configuration eliminates traffic jams typical of airports featuring alleys or piers. (Credit: David Joseph) What factors are driving this transformation? Certainly one of the biggest is the emergence of the low-cost carrier (LCC). In particular, India, China, Indonesia, and Malaysia have witnessed a steady stream of new entrants into this lucrative market. But many airports lack the facilities to accommodate the operational approach and increased demand that an LCC creates. To attract and retain this lucrative service, airports have had to be inventive. On the landside, the LCC business model relies heavily on passengers obtaining their tickets and boarding passes somewhere other than the airport ticket hall-mostly online. The result is a reconstruction of the ticket counter area to provide more places for bag drops and electronic check-in, which minimises the space airlines must rent. Once past security, LCC passengers will find smaller hold rooms in response to the reduced wait time enabled by quick aircraft turnaround. The legacy carriers Riding out the restructurings of 2005-2007, airlines were beginning to show profitabilityuntil volatile fuel prices and a drop in ridership took their toll. In response, the legacy carriers shifted aircraft and personnel to more profitable domestic routes and the international sector. This realignment resulted in reduced domestic capacity for the legacy carriers, dropped routes being picked up by the LCCs, and diminished service to second- and third-tier cities. Conversely, the larger legacy carriers heralded new international routes made possible by open skies agreements. These airlines are

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asking airports to update, enlarge, or otherwise enhance terminals to allow increased international service. Like the LCCs, the legacy carriers new business model has huge implications for airports. Airport terminal operators are faced with decreased demand for domestic gates. In cases where airlines have long-term leases on specific gates, airports are seeing unused gates that cannot be made available to other carriers. Where the legacy carriers have acquired new international routes, or wish to, airports are seeking ways to convert unused domestic gates to international swing gates and to develop new or expanded customs facilities. How to finance these capital improvements remains a problem.

The new North Concourse of the Norman Y. Mineta San Jose International Airport (SJC) is the first installment of a larger comprehensive master plan designed to meet the needs of 21st century air travel in San Jose and the Silicon Valley. (Credit: Sherman Takata) The model is flipped Airlines have long viewed their passengers as their customers; facilities were only a means to serve those customers. Airlines held long-term residual, exclusive-use gate lease agreements with airports, many with Majority in Interest (MII) clauses that made it difficult for airports to add new gates or amenities that would attract new entrants. Now, the model is flipped. Airports are realising that the passengers belong to them; the airlines only provide air service. Airports recognise this new opportunity and are

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focusing on controlling all aspects of the terminal to provide top-flight service to both passengers and airlines. With airports seeking greater control of their facility-charging their tenants (including airlines) for what they use and when they use it-common-use airports and their compensatory agreements are beginning to transform the industry. When airports are unsure which, if any, airline will provide service in their facility, the common-use strategy removes a degree of uncertainty. This allows the airport to own its gates, loading bridges, ticketing hall, and baggage claim facility and assign their usage to a carrier when needed. The net result: the airport has better use of its facility, can attract new entrants, and is better equipped to manage growth and expansion. But theres risk as well. Unlike a residual agreement that requires the airlines to help cover airport debt and operational expenses, in this scenario the airport is solely responsible for potential revenue shortfalls. How will this impact airport design? A fully common-use terminal strategy allows for a greatly reduced ticketing hall and fewer aircraft gates and baggage claim facilities. In turn, this requires less square footage in the terminal, resulting in lower construction costs. Paying less money for a terminal that is more flexible allows greater utilization of the assets, while offering potential for greater passenger comfort. By reducing airlinespecific areas within the terminal, airports also can expand concession space for greater selection of goods and services, increasing revenue potential. Key to the success of the common-use model is successful deployment of technology. In lieu of corporate graphics permanently posted at ticket counters and gates, identifying signs will be electronic, with airline logos and colours changing throughout the day with the airline assignment. When an airport embraces the common-use model, kiosks cease to be airline-specific. In the near future, customers will not only check in at any kiosk, they will receive their bag tags there too. Then they will place their bag on a nonairline specific bag drop, and the system will route it to the correct airline bag make-up area.

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The ticketing hall at JetBlues new terminal at JFK is designed to accommodate increasing numbers of passengers arriving with boarding passes in hand, or using eticket kiosks. Traditional ticket counters are located at either end of the space, with several bag drop and e-ticket kiosks more centrally located. (Credit: Nic Lehoux) Soon kiosks will be in places other than the ticket hall. Passengers ability to check in for any airline and tag and drop luggage at a hotel, office, convention center, or parking garage will drastically alter terminal design. No longer will ticket halls recall the grand train stations of the past, with soaring ceilings and rich materials. In the common-use terminal, the ticket hall becomes merely a place to drop ones bag or pass through on the way to passenger screening. It will become greatly diminished in size, replaced in importance by the baggage claim area, where the experience of arrival will be the celebrated architectural event. Under the common-use business model, cost-effective, highly flexible airports will replace the less nimble, airline-centric model of the past. Airlines will benefit from paying only for what they need, when they need it. And airports-which ultimately have the responsibility for satisfying low-cost carriers, legacy carriers, and passengers at the same time-will take back control of their facilities, gain the ability to manage their assets more efficiently, and provide a higher level of passenger service. Despite the intensity of the challenges, the aviation industry must still focus its long term sustainability while managing the short term economic climate. The key issues facing airports today are not in isolation as many of the airlines issues have a direct effect on airports. Therefore it is imperative that airline and industry issues are acknowledged and

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a strong partnership approach is utilised as the industry bands together to work towards a viable future. Creative and innovative solutions to sustain the industry during this difficult operating environment are outlined with the focus on creating value for the airlines and all users of the airport through partnership, a customer service orientated approach, alternative marketing and corporate governance. Through a collaborative effort the vision for the aviation industry is sustainable and sound. As history has shown the industry has the resilience to overcome challenges and create new opportunities for the future. The exceptional economic challenges facing the global world today have by far outweighed any other in recent history in both scale and scope. From the volatility in global markets to the declining consumer confidence and limited to no access to capital, industries are now been forced to regulate and implement practices to ensure the continuation of worldwide trade. We have seen financial institutions nationalised and billions wiped from large corporations. The air transport industry is not immune to these global trends and is now facing the tough challenge of managing this short term crises whilst continuing to work towards the long term robustness of the industry. In the first three months of 2009 there has been a 10% decline in international travel and a 7% for domestic travel (ACI).

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Whilst this is seen as extraordinary circumstance, airports cannot become too overwhelmed and consumed by the interim challenges as the industry has shown much resilience with overcoming challenges such as SARS, 9/11 and other global events. The future of the industry depends on the lessons that can be learned of today in sustainability, planning and partnership to ensure the successful continuation of the air transport industry. What outcomes and strategies airports and other industry will take from this ultimate teachable moment can mould and shape the strength of the future of the industry. As with most worldwide industries, airports have had to readjust, reanalyse and revalidate their financial position, business objectives and ultimately identify who their customer really is. Airport infrastructure and capabilities are being challenged during the uncertainty surrounding the economic landscape. All airports today regardless of size, market, ownership scheme and airline partners have been forced to question current practices and measures to ensure their long term stability, and more recently, profitably. Airports tactical plays and strategic commitments are being reviewed as airports look to protect their value creation and long term longevity. Airports are traditionally government owned and regulated which has handcuffed more commercial thinking. In order to be efficient today, airports need to be managed and operated like commercially viable organisations. As such airports, as are other

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commercially astute organisations, are examining the true value of business partners, partnerships and customer identification with clear objectives, parameters and benchmarks. What may have been considered sensible operations and business practices in the past now must be reviewed. Yet the airport industry must benchmark success and customer service standards in the context of understanding the diverse and fragmented ownership of airports whilst working together in solidarity. However whenever there are challenges, opportunities arise and innovative ideas can platform into new ways of thinking. Innovative and creative solutions to todays economic challenges can come about as more effective ways to communicate, operate and perform become essential criteria for success. Before identifying some new ideas, it is important to discuss some of the issues and current situational analysis.

10.
Background

Situational Analysis and Key Issues

It is important, whilst discussing the current challenges facing airports to also understand and recognise the issues facing airlines.After all, without airlines flying to an airport, an airport is unable to reach its objectives. Issues that affect airlines, affect their ability to grow passenger numbers. If a year ago it was announced that fuel prices were the levels they are today, airlines and airports would have rallied to celebrate the end of an era of extraordinarily high fuel price crises and subsequently extremely high operating costs; a particular detrimental implication for low cost carriers. A year ago the discussion would have focussed on whether an airline had appropriate fuel hedging in place. Furthermore environmental concerns for air travel and airports inability to cope with airline growth with scheduling were also higher on the agenda than today. Regardless, the reduction in consumer demand for air travel in late 2008 and early 2009 has far outweighed any celebrations in lower fuel prices. Airlines trying to survive todays environment have the ability to reactively respond to environmental conditions by reducing capacity, parking aircraft, changing routes, offering sale fares and stimulating demand. Airlines can withdrawal services from an airport and redistribute their capacity elsewhere, often leaving airports

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vulnerable. On the other hand, airport infrastructure is a long term high capital commitment. Airports in their own right are a sunk infrastructure investment and have very high fixed costs with limited ability in reducing operating costs. The fixed asset requires effective utilisation to provide a return on capital investment. Supply from the airline side and demand for usage can directly affect the cash flow and operating costs of airports. Airports need to effectively utilise their infrastructure resource, whilst at the same time managing their own exposure to risk with volatile airline partners. An airlines defence mechanism to the current financial instability of reducing capacity with the hopes of obtaining higher crew utilisation and higher yields directly impacts an airports ability to retrieve loss revenue from a reduction in passenger numbers both in aeronautical charges and retail opportunities. Ownership One of the key issues facing the industry today is focusing on rallying together for action whilst maintaining the integrity of individual airports. The evolution of airport ownership has seen many airports develop from a traditional nationally owned entity, withholding responsibly for establishing a return on investment for shareholders, to that of a commercially viable operation. This has led to a proliferation of competing airports that have diversified or started the process of diversifying their customers, revenue streams and becoming market leaders; resulting in some airports now needing to defend their first mover advantage for growth in the region. Simultaneously other airports continue during these times to battle legislation, reregulation and national policy as well as manage the short term challenge. Airports operating within this diverse range of ownership has led to airport trading partners working together with varying degrees of autonomy and decision making power. Cooperation between competing airports is challenged as some airports reduce their aeronautical charges in the hopes of gaining more capacity. Revenue earning then becomes a more serious internal and external debate and the question then becomes, how low is too low for charges?

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Capital Restraints for Airports and Airlines An airports distinct resources are also at risk with the tightening of global credit conditions. Banks across the world are tightening their lending to levels not seen in recent years.

With a reduction in cash flow as a reaction to the competitive survival strategies of airlines, airports may also need to rethink, postpone or withdrawal from planned capital expenditure, including terminal redevelopments, runway overlays and airport expansions. This we can see with Brisbane Airport in Australia in April announcing the deferral of their $A750 million domestic terminal expansion for at least 18 months and their $A1 billion parallel runway project postponed up to three years (ABC , 2009). The flow on effect of the inability to pursue capital expenditure to update existing

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infrastructure may lead to an airport operating at existing full capacity and not able to attract new airlines or services, subsequently hindering the growth plans and even competitive advantage of the airport precinct. Whilst the short term is seeing unprecedented circumstances, history has shown that the aviation industry does return to growth in correlation of the economy (CAPA). Thereby the pressure for an airport to be able to continue with capital investments for their future is high in order to take advantage of the next boom time. Despite the economic and social benefits of increased air access, airlines in general have not been able to recover the cost of capital. This has lead may airlines unable to provide a return on investment to shareholders:

For the past few years, and in particular in Asia, airlines have been ordering new aircraft to fulfil future expansion plans, replace environmental unsound and inefficient fleet, and maintain market share (CAPA). Many airlines took advantage of the buyers market post 9/11 and capitalised on the opportunity of purchasing aircraft with available financing and affordable purchasing arrangements. Post 9/11 also saw the rise of low cost carriers in the region such as Virgin Blue in Australia and AirAsia in Malaysia, who identified the ability to quickly enter the market easily with the finance barrier to entry

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reduced. A particularly relevant issue in todays economic climate is seeking finance, and lending has become increasingly difficult to nonexistent. As such airlines are not able to seek the finance available to fulfil those aircraft orders made during the boom time and have limited capital raising ability without the financing. As a result, planned expansion for many airlines has now been either postponed, or revised down. For example, Virgin Blue in Australia have parked aircraft, deferred orders and reduced capacity on non-performing routes as a response to diminishing cash flows. Virgin Blue, as with many other airlines, certainly has the ability to ride out the storm and these short term actions are mechanisms to ensure their long term viability (Virgin Blue). Nevertheless the impact on airports is profound with airport having to readjust future passenger forecasts and revenue Airport Product Match As organisations currently look inward to consolidation measures aimed at saving jobs and cash, can an airport afford to do the same? The challenge for airports is to remain profitable, whilst often their identified customer, the airline, struggles to sell seats. Airports must be more strategic and innovative and become more accountable for the fate of its airport user, whether it is the airline, or airline customer or concessionary owner. This can lead to the issue of understanding who your customer really is, be it your airlines customer, the airline or other airport users and the strategic decision making challenge of focusing the airports strength in maximising value for all stakeholders. KLIA in Malaysia along with the separate LCCT terminal exemplifies the opportunities that are created with space, shopping and facilities that not only allows for growth in non-aeronautical revenue but also customer satisfaction. It also provides the opportunity for Malaysian Airports to work in partnership with both low cost carriers and full service carriers and their own target market of travellers. Malaysian Airports having diversified its customer mix of airline partners with the LCCT and KLIA provides a portfolio that can focus on leisure and volume passenger numbers, appropriate during the economic climate and also full service carriers who can target passengers across the world through its global network

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and alliances. Essentially airports are no longer a generic product for all but need to target products, facilities and level of experiences based on their key customers. Often smaller airports have a less diversified traveller mix with the main focus on leisure. This could potentially increase the risk of a loss of capacity as more consumers focus less on travel and more on saving and or surviving (CAPA). However regional airports that focus on low cost carriers in the product mix are more ept to sustain the short term downfall based on the value proposition offered of a value based product for consumers. At a time when the words trading down and seeking value for money enter the consumers vernacular there is the opportunity that such low cost airports can have a competitive advantage over other smaller regional airports that focus more on legacy carriers or yield base business. Whilst the airlines decision to withdraw or reduce capacity is a commercial decision during a stage of internal consolidation, the flow on social and economic impact on the region could be devastating. As such an airport is in a strategic position to be able to identify and work with key partners within the destination and act as a gateway not only to the stakeholders but also airline maintenance and growth plans. The role that an airport, in particular a regional airport, can play in tourism growth and accessibility can be vital in a destinations ability to attract new and repeat visitors. Analysing Todays Economic Challenges Understanding the current situational analysis and issues undermining airports today can be analysed using the Porters Five Forces Model of industry competition. Michael Porter proposed that there are five main forces of competition and an analysis of each can help organisations identify their strengths and weakness in the competitive environment and the attractiveness of the industry (Hooley, Saunders, & Piercy, 2004). The model analyses the attractiveness of the industry by considering the barriers of new entrants and substitutes, the power of buyers and suppliers and rivalry between organisations.

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Porters Five Forces of Competition for Airports Barriers of entry- Airports have a high capital cost of operating because of the infrastructure involved. Immediate and short term competition of a new airport developed close in very proximity is minium. In order for an airport to have a competitive advantage high utilisation of the terminal is needed for recovery of the cost of high capital. Particularly for regional airports which may not particularly experience the same spread of demand and aircraft movements that a capital city airport may experience. Availability of land sites for airport development is also a barrier for airport expansion. Given the size of land required for airports, there are often restrictions and limitations based on the location of the desired site. The growth of the urban sprawl can contribute to an airport having to focus on community issues, such as noise complaints and curfew hours when planning strategies for the future. A benefit for regional airports is that they may not be required to follow the national bilateral agreements, such as in Australia. This allows for regional airports to target airlines that have already reached the capacity level available to them flying into capital reach cities. As more routes become liberalised there is the opportunity for route

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development by competing airports. Airports do need to be aware however of the possiblity of excess capacity as new entrants commence on liberalised routes. Strategic planning with airline partners is required to ensure cannabilisation of other partner airlines does not occur. National governments can also play a role in the growth at the airport as deregulation and commercial freedom allows for a healthy competitive environment to take place (IATA). Obtaining national and or local government approval for infrastructure and (IATA) approval property development can be a long process hindering airport expansion. The economic challenge for airports today is to focus on sustainable growth and internal efficiencies in a competitive environment. Bargaining power of buyers- The main buyer or customer to an airport is the airline partner. Airports are often at the whim otirports of the airlines route development in terms of the airline targeting destinations where the airport and local government may offer the biggest incentive and lowest aeronautical charges to lure the airline. This is particularly relevant with low cost particular carriers. As airlines are reducing capacity the balance of power can be skewed to the airline as they understand the need for an airport to maintain airline capacity levels for revenue generation as an airline can simply withdraw services. Alternatively an airport faces slot restriction levels and can implement peak time pricing as a bargaining power with airlines. Tiger Airways announcing their arrival into Sydney Airport demonstrates the challenges and opportunties of the economic downturn. Before the downturn, Sydney Airport did not have slot availability or the need to negotiate with a low cost carrier who would have seeked very low aero charges. The downturn rate changed the shift of power and provided an opportunity for Tiger Airways to grow their Australian network. In addition the liberalisation of air travel between countries, such as the recently opened Singapore-Malaysi route, has stimulated countries competition between airline players to increase market share. This directly impacts on the aiports ability to negotiate with the airlines as airlines compete to gain a competitve advantage over each other.

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Air travel has become a commodity in todays world due to low airfares with the emergence of low cost carriers. As more of the worlds population, particularly in AsiaPacific, can afford to travel flying is no longer a luxury item. With this been said, offering, a pricing scheme to the airline partners that allows your key partners to grow sustainably becomes a key challenge in the allow negotiations. Implementing a pricing strategy that allows the airport to continue to operate at sustainable levels and establishing a long term relationship with the airlines becomes a balancing act with the two players. Often airlines already are working with unsustainable margins, in particular the low cost market, which increases the pressure on airports to lower their charges. Pricing can give the airport a competitive advantage by meeting the airlines needs and allow them to grow passengers through the airport. Despite the airports responsibility to work closely with the airlines in sustainable pricing agreements, airports are continuously aware of their reliability on an airlines performance for their profit. Bargaining power of suppliers- An airports relationship with suppliers includes a broad range of stakeholders who effect the day to day operation of the airport and can have control over pricing structures to security procedures; all factors that can often be challenging in todays environment. Government policy often determines suppliers on the airport, such as in Australia with Air Services Australia. Mandated charges by Government departments can often be detrimental, particularly if volume based charging takes place. If an airport has a direct competitor, based on location, such as Brisane and the Gold Coast Airport, this can challenge the smaller airports negotiation power with airlines.

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As Air Services Australia charges are significantly higher than Brisbane, it is very difficult for Gold Coast Airport to negotiate with international carriers for services as an alternative to Brisbane. Brisbane has the economy of scale advantage with the mandated charges. During this current economic environment this can be a challenge in competing for new services. The relationship with airport site suppliers such as ground handling and concessionaries can also be a challenge. As aeronautical charges are reduced there is a real need to focus on non-aeronautical revenue particularly within the terminal. Working with on site concessionaries to maximize their potential to offer value to the passengers is becoming more relevant in todays economic environment. However as discretionary spend decreases for passengers the challenge to make up revenue earnings from aeronautical charging becomes increasingly difficult.

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Threat of substitution. Despite all the challenges facing the airport, the air transport industry as a whole must also recognise the threat of substitution by other means of transport including rail, car and bus. When fuel prices reached their peak, people were hesitant to drive long distances with such high costs. As these costs have lowered the proposition of travelling by car becomes more affordable. Nevertheless a strong ground transportation link to the airport and the infrastructure in place to access the local catchment area plays a role in the volume of potential airport users. Despite governments working towards economic packages to stimulate consumer purchasing, air travel also has to compete against other material items consumers may purchase. There is a real threat of discretionary income being spent on new televisions, household items or other large ticket items. Airports need to work closely in partnership with travel industry partners for retail marketing pushing leisure travel to compete in the market. There are varied and many economic challenges for the aviation industry. However as challenges are put forth there are opportunties for growth, enhancement and sustainability as airports look for innovative and creative solutions that will see the industry continue during the short term instability while focussing on growth for the long term. Innovative and Creative Solutions for Todays Challenges Value Creation and Partnerships Innovative solutions are needed for the air transport industry to be prepared for the future growth expectations while surviving the current downturn. Airport investment in its partnerships, its people, smarter technologies and streamlined business processes will all strengthen the competitive response to the current climate of instability. Value creation in any industry is vital for survival and airports are no exception. Creative and innovation solutions to capturing value can stem from an airports ability to focus on its key infrastructure resources while capitalising on its core competencies to sustain a competitive advantage.

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Firstly we must acknowledge that the air transport industry is global and operates 24 hours a day 7 days a week, across all borders, nationalities and cultures. Regardless of political boundaries, airport ownership and liberalisation trends; air transport has become a key resource in todays global world. It makes sense that the industry that connects all people around the world, in business and leisure, work in partnership with key stakeholders. No one actually flies around the world to visit an airport, they are utilising the space to travel between point A and point B as the destination is what drives airport business. It is vital that an airport can solidify a working relationship and strategic partnership with the destination that the airport services. Without a destination or location there isnt a need for an airport and without an airport, airlines cannot deliver the number of visitors to a region. Moving forward vto search for answers for the current downturn and preparing for the future continued growth of the industry, it is imperative that collaboration and partnership takes centre stage. The opportunity is to work cooperatively in mutually beneficial partnerships and continue to grow the advancement of the reputable industry. Whether the relationship extends to international organisations such as the International Civil Aviation Organisation (ICAO) to small regional destination organisations; stakeholder engagement is important to adding value to the community at large. By playing an important liaison role between industry players, airports can enhance strategic industry alliances and provide leadership to grow the aviation and tourism industries. Airports can be directly involved in stimulating demand. Maximising Distinctive Resources Incorporating the airports distinctive resources and capabilities with core competences will provide an airport with the platform for a competitive advantage. For example, Gold Coast Airport is currently undergoing a terminal redevelopment that will see Gold Coast Airport become the first low cost carrier dedicated terminal in Australia. Allowing the airport to maximise the infrastructure and approach low cost carriers to grow their routes from the airport without having to compete with legacy carriers. The challenge for Gold Coast Airport now is to maintain its first mover advantage of becoming the first dedicated low cost carrier airport in Australia while facing growing competition from

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other regional airports and even capital city airports building low cost carrier terminals in Australia. One way to continue to hold market position for airports is to understand what their airline partners require to grow services to the airport, and develop and design aircraft parking and a terminal that meets the needs of your customers and airline partners. More and more today airlines, in particular low cost airlines, are looking for cost reductions and aircraft utilisation wherever they can. One measure to ensure an airline can maximise their aircraft flying time is to design an apron and operation with maximum efficiency including quick turnaround time and effective use of aircraft parking. It may not be necessary to build that aspirational gold plated airport to attract airlines but rather focus on the functional benefits required for operational use as well as the passenger journey. In addition involve airlines in infrastructure development to ensure that their functional needs are met for future development. Not only can an airport view the infrastructure development such as a runway extension or terminal redevelopment as a driver for further growth, but also other broader aspects of a commercial organisation such as the retail space, business development and marketing. Customer Service Approach to Maximise Revenue When travelling to a new destination the first impression is on arrival at the airport. Impressions and experiences at the airport can be highlighted based on the customer satisfaction which is a tool for loyalty. Airports that can implement best practices in customer service standards will be able to see the direct result from satisfied passengers. Airports are maximising opportunities to raise income from nonaeronautical revenue such as rent, concessions, car parking, consultancy and property development to offset their reduction in aero revenue. This increase in airport management on passenger spending in the terminal and car parking has seen the traditional model of an airlineairport passenger relationship evolve into a more complex relationship of various passengers.

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It is important to recognise that the passenger travelling through the airport, and becoming a user of the facility is a direct customer of the airport itself, rather than than just an airlines customer. Establishing and creating a service oriented environment has the potential to create loyal airport users leading to a higher volume of passenger numbers. This is critical particularly in an environment where more than one airport is accessible in a catchment area. The service quality experience the customer has can decide if they again choose to travel through the airport. Understanding what drives the passengers purchasing decision making process and creating the ability to enhance their experience at the terminal can increase their desire to relax and spend at the terminal This is particularly an opportunity where there are two or more airports in close proximity and passengers can select their airport of choice. For example, Gold Coast Airport is located within an hour and half drive from Brisbane Airport.

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Customers come to the conclusion and make value assessments not on products or services perceived benefits to the customer but instead the solutions they provide (Vargo and Lusch 2004). An airport facility provides the customer the gateway to their destination, arrival point to their holiday or access point for a business trip. Identifying customer-focused approaches to service quality and marketing within the airport terminal and beyond will offer further value to the customer. Customers make assessment on all aspects of the service delivery component, whether it is the cleaning employee at the terminal, the ground handler at check in or the Airport Manager. During slower times at the terminal, now is the time to assess current customer service levels, identify areas of improvement and innovative solutions to exceeding customer expectations of airport facilities. A gap analysis of the customer service standards at the airport terminal may highlight areas that the airport has an unique competitive advantage from other modes of transport and provide further value to the passengers. Customer-driven perceptions of the airport and service quality are paramount, in particular in the current environment where value for money and service is important. Business Development and Marketing for Airports Business Development During difficult times and uncertainly, a quick solution for management is to reduce the cost of marketing. However, now more than ever value needs to be perceived and created by meeting and exceeding the needs of both the business to business partner of airlines and airport passengers. The significant role that airports play by providing access to a destination for visitors can be further extended with the value airports place on their business development roles. Integrating industry, small businesses, ground transport, government and tourism organisations with the airport business processes will be a valuable tool for airline partners. Aeronautical revenue can be maximised by marketing on behalf of or in conjunction with an airline to grow passenger numbers through the airport. Joint marketing plans and cooperative marketing can add value to the partnership with the airline by helping them sell seats and provide airlines with the confidence of working more closely with the

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airport. Giving the airport a more strategic role in the airlines development for the airport and leading to more effective future passenger forecasting. The next step in airport marketing is to understand additional ways reach a return on investment. Whilst attempts are made to extract more value from passengers in regards to non-aeronautical activity within the terminal, the next stage of value creation is to understand new revenue streams that may be available to airports. Airports can investigate what focus they can have on more non-aeronautical revenue streams (both within the airport itself and outside) and activities without taking away the core business of airlines. What non-aeronautical revenue opportunities are there for airports outside the business and grounds which can extract further value from its various customers? By utilising the airports access to the local market through research and analysis an airport can investigate what opportunities may be present. Consumer Marketing Experiential marketing and alternative media may not be traditional lingo in an airport marketing mix. However, as an airport with a marketing focus in times of cost reduction, innovative marketing becomes imperative. In addition to marketing in partnership with airlines to promote their routes and sale fares to and from the airport, airports can focus on marketing directly to their local catchment in a manner that will raise awareness and engage the local market. In todays internet savy world, consumers of all products and services are constantly inundated with special offers, deals, brand information and marketing messages. With so much clutter both online and in traditional media it is often difficult for a consumer to really connect to the product or service. What many marketing departments have realised is that an effective marketing tool with the consumer is to include alternative media and online strategies as a cost effective tool to promote their brand. For example through the use of viral online campaigns, social media sites, search engine optimisation and database marketing. Many of these tools attract more visitors to a brand website. Optimising airport information on the website by ensuring the information is relevant and valuable will

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enhance the airports credibility particularly in the changing times of messages which are in shorter news cycles than previously Airports also have a brand and marketing message and have brand equity in both business relationships, such as with airlines, but also with the travelling passengers. In particular for those that are regular users of the airport which can generate loyal repeat customers. An innovative solution for airports is to look at other successful brands and industries in regards to their marketing and communication mix and establish a marketing strategy similar to one in a service driven industry. Identifying regular users of the airport as a potential pool of loyal customers of the airport (as opposed to just an airline customer) airport marketing can focus on targeting these passengers in the market mix and work towards their perception of value to the airport product, leading to a loyal customer base. Database creation and collecting emails is more than just a tool for broadcasting information regarding the airport to those that register. Collecting data such as demographics, area of residence, travel preferences and so forth allows the airport to connect with recipients on a personal level. Marketing intelligence than can be used as a partnership tool with airlines by providing them an analysis of local travel patterns and potential demand for new routes and also key marketing messages that the passengers will respond to. Customer insights into their behaviour data can then contribute to their customer service experience at the airport and understand new ways to generate both non-aeronautical and aeronautical revenue. User-generated content (UGC) is another tool airport marketers can use to receive feedback. Whilst airports may find this uncomfortable if they perceive the potential for negative commentary, it is still an effective tool to track feedback and understand the customers using the airport. For example, a recent Twitter on KLIA stated: thumbs up for free wifi at Kuala Lumpur International Airport - (Twitter). Collecting information via online surveys, BLOGS or other social media site will identify new and innovative ways to extract more value from passengers to make up for smaller aero revenue while at the same time also increasing loyalty to the airport.

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Corporate Governance and Shareholder Value An interesting scenario that this current crisis has raised is for industry and market level analysis of current risk strategies and the discussion of new aviation strategies. At a time when many in the industry, including airlines and airports are focussing on consolidation of services, distribution and partnerships, there is the opportunity to identify key potential risks and an airports organisational inefficiencies. Many airlines now are reviewing their fuel hedging policy, to ensure they are better equipped for the next fuel hike. At an airport level optimising capital management and identifying risks associated with interest rates, debt and capital and transforming these risks into sustainable strategies for the future has become a real opportunity during this period of instability. Corporate Governance best practices can be implemented into all aspects of the airports organisational structure. By having a check and balance system in place, the airport can identify key growth strategies and appropriate airline partners that will sustain growth for the airport and at the same time offer shareholder value. By working in a transparent environment in ways that are acceptable both socially and environmentally and ensuring effective financial policies in place for sustainable practices. Wherever possible, airports can implement environmentally sustainable practices by establishing whole of airport environmental plans to consolidate policy and identify where gaps lie between the green vision of the airport and current practices. Airport planning and management can take into consideration all the new alternative ways to generate energy and reduce emissions. Implementing recyclable water and other effective measure within the terminal can take precedence. Furthermore an airport should proactively address community concerns about the environmental impact of the airport and play a lead role in educating the community of the positive value growth of the airport has for the community. An active airport impacts the local community with social, economic and environmental benefits and as such has the opportunity to act in a responsible and leadership manner with the wider community.

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Visions for the Future The short term issues of financial instability at hand are complex and diverse and include the slowing economic conditions, consumer confidence and the flow on effect of weaker passenger demand, airline capacity reductions, loss of revenue from lower aeronautical charges and reduced access to capital. However, the industry has overcome many challenges in this past decade alone, from SARS to 9/11, to airline collapses, lack of aircraft and high fuel prices. Yet the industry continues to shine as robust and viable. The world needs air transport and airports, and airports stakeholders can continue through the long term with common goals in place. Pandemics, terrorism, global events and the instantaneous distribution channel of the internet have made it imperative that knowledge is shared in all aspects of the industry. The immediate and collaborative response to the threat of swine flu has proven that the industry can respond quickly and effectively in a global manner. More importantly as the information age has no boundaries. Effective and consistent communication both to customers and business partners will continue to lead the response to the economic downturn, swine flu and any other events that may challenge the industry as a whole. Strategies are in place as we work together in solidarity for confidence in the future of the industry. Streamlining efficiencies in operational integrity, new business processes and paradigms and the use of new technology will continue to see the industry and airports work towards a competitive advantage and achieve outcomes which are appropriate for airport shareholders and acceptable for stakeholders. Value creation for airports will continue to have a dominant effect on decision making by airport managers. Working with key airlines by closely understanding their business model and customizing the relationship will provide the benchmark for future airport/airline relationships. Excellence in operations, flexibility working with partners, efficiencies in lowering operating costs as well as reducing noise and emissions are all possible and timely for the aviation industry. The value proposition of low cost carriers will continue to become of greater importance in an airports passenger mix. Airports will start to have a better understanding of the low cost carrier market and will customise pricing schemes that will provide low cost

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carriers the opportunity for sustainable growth while protecting the market position of incumbent airlines. As airports play a more strategic role with their relationship with airlines, airports will be able to produce valuation models that better help them segment their business strategies. Full service carriers, some of which are feeling the effects of the slump in premium traffic, can take this opportunity to redefine their business process and understand where their position is on the value chain and realign their future strategies with the learnings of todays economic challenges. As with airport goals, diversifying the product mix and meeting the needs of their passengers will challenge the full service carriers into efficient practices. As with past events full service carriers will bounce back to sound growth forecasts and continue to serve the global community with a network of routes linking all people across all cultures. Airports will continue to evolve into commercially viable operations with organisational structures and policies that will provide the needed support for airports to prosper with a triple bottom line approach of social, economic and environmental goals. As airports continue to shape the local community, airports can embrace this leadership role and lead by example the community into environmentally sound practices which will improve efficiencies that will reaffirm the aviation industrys commitment to the environment. Green less expensive options for airports will ensure that sustainable and best practice implications take place. Investing in low cost yet efficient solutions that will reach long term success while continuing working in partnerships with airlines. The Indian Civil Aviation Sector is in for a major overhaul over the next few years. In the wake of major policy changes taking place (due to a shift in the mindset of the government from considering air travel as elitist to making it available for the common man) and liberalization of air travel services, a sharp increase (5-10% yoy) in air traffic is expected. The airports in India are inadequate for handling this increase and with India hosting the Commonwealth games in 2010, upgrading airport infrastructure assumes prime importance. The problem is further compounded by the lack of resources with the government. Hence, the recent thrust on airport privatization.

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It is important to examine the different modes of providing airport infrastructure in India. Interestingly, these range from government owned airports (use of civil enclaves and government operated airports) to publicly held airports (Cochin International Airport) and airports built/upgraded through Public Private Partnerships(PPP), like HIAL(Hyderabad), BIAL(Bangalore) and Delhi/Mumbai airports. The paper examines the financing, control structure and revenue accrual mechanism in each of the modes. It is important to start with an analysis of airport infrastructure in India by benchmarking metrics (a number of Revenue Based, Profit based and Input/ Output based metrics are computed) against international airports. Further, key areas of areas of improvement are identified. The author then critically examines the different modes of airport infrastructure provision in India. Two key findings are the use of innovative incentives by the government to attract private participation and the importance of alternate revenue streams (non aeronautical revenues) in making airport projects feasible. The Government of India(GoI) has used initiatives like provision of subsidized real estate along with the airport land in order to provide an additional source of revenue. An instance is the Greenfield airport at Bangalore (BIAL) that is expected to handle only 7% of the traffic of the London Heathrow airport but has 1.4 times more area. On the financing front, airports in India range from 100% government funded to airports that have limited state government stakes. The control structure depends on the equity bought in by various partners and hence varies with the financing. The Indian Civil Aviation Sector is in for a major overhaul over the next few years. Major policy changes are taking place because of a shift in the mindset of the government from considering air travel as elitist to making it available for the common man. This has led to the liberalization of air travel services. The entry of low cost carriers is expected to cause a sharp increase in air traffic by eliminating the price premium of past years analysts estimate 10-20% growth in traffic in the next 5-10 years. The airports in India are inadequate for handling this increase in traffic. The Naresh Chandra Committee Report identifies a number of loopholes in the current system and suggests improvements. The government decided to privatize airports in order to induce

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efficiency and avoid the burden of investing in the same. This is in line with world trends where airports are being seen more as businesses than infrastructure providers. There has been a lot of debate over the rationale of privatization of airports. Critics argued that given the importance of airport infrastructure, private players would overcharge and exploit the public. On the other hand, proponents of privatization argue on the basis of poorly managed public airports. Government Failure in airport infrastructure has largely driven privatization. Further, privatization also brings in much needed capital and the efficiency introduced by market forces. However, governments across the world have been careful to prevent market failure by actively regulating airports. There are many ways to involve the private sector in airport infrastructure provision. The figure2 provides a brief representation of the same. The three different colours show the different categories of private sector participation in infrastructure sector monopolies.

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The white color corresponds to supply and service contracts, which tend to be of short duration and require less private commitment than the options higher in the continuum. The private contractor is not directly responsible for providing the service, but instead for performing specified tasks, such as supplying inputs, constructing works, maintaining facilities, or billing customers. In this first category, private sector involvement is highest in management contracts. When these include mechanisms linking the contractors compensation to the performance of the utility it manages, they come closer to the concession-type arrangements (light gray) At the end of the concession term, the sector assets are returned to the state (or municipality). The term BOT (build-operate-transfer) is often used to refer to greenfield concessions. BOO (build-own-operate) is a similar scheme, but does not involve transfer of the assets. Divestiture, finally, involves the transfer to the private sector of the ownership of existing assets and the responsibility for future expansion and upkeep. In both cases, the private company is responsible for financing and carrying out the investments required to meet the obligations specified in its license or by the regulator. The differences between the different types of concessions can be classified under the following heads:

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Responsibility for new investments

Although the responsibility of the private sector under a concession always includes the operation and maintenance of the system or facilities and the supply of the infrastructure service, it may or may not include the design, construction, and financing of the new infrastructure. Legal Ownership The legal status of assets built and financed by the private operator may also vary. Private ownership may give investors more protection and facilitate the financing of concessions by making these assets available as collateral.

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Duration Leases, BOTs, and concessions are generally granted for fixed periods. At the end of the specified term, most assets (including those financed by the concessionaire), as well as the right to carry out the activity, return to the public entity. The contracts duration tends to reflect the number of years investors need to recoup their investment. Regulatory Implications Concession arrangements embody a regulatory framework and should be seen as an integral part of economic regulation, rather than as a substitute or alternative. The key elements of the regulatory framework, including tariffs, degree of competition, interconnection regime, and performance targets, are defined in the concession contract or operating license. Because of the element of monopoly, public service obligations tend to include detailed specifications on the service to be provided, the obligation to supply, equal treatment of users, continuity of service, and so on. In consideration of these obligations, concessions often grant certain exclusive rights to the private operator. Airport Business Model and Privatization Privatization of airports would affect their business models too. Airports have two kinds of revenue streams aeronautical and non aeronautical. International airports tend to have a larger percentage contribution of non aeronautical revenues whereas AAI (Airports Authority of India) still lags in this regard. The government has recognized this and the Greenfield airports at Bangalore and Hyderabad have been provided plenty of real estate to develop non aeronautical revenues. We start with an analysis of some international airports and the Airport Authority of India(AAI), with the purpose of benchmarking the airports. A number of revenue, profit and input/output based factors are identified for the purpose. This leads us to certain conclusions about the state of Indian airports.

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Benchmarking Airports Purpose In order to carry out the study, annual reports of publicly listed airports was carried out and this was compared with the Airports Authority of India(AAI). It should be noted that consolidated figures for all AAI controlled airports were used as corresponding figures for individual airports were not available. Unique Zurich, Vienna, Brussels airport and BAA were used in the analysis. The choice of airports was largely based on availability of data. The Results Parameters under the following broad heads were analyzed for the purpose of the benchmarking exercise Revenue, Profit and Input/Output based factors. For the purpose of comparison, all factors were converted to an indexed value

Relatively speaking, AAI has :

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A high percentage of aeronautical revenue This shows the high dependence of AAI on aeronautical revenues and the low level of development of non aeronautical streams of revenue. Low commercial revenue per passenger This points towards a low level of development of non aeronautical streams of revenue. Very low revenue per employee AAI, being a government controlled organization, cannot take tough labour related decisions based on economical considerations. Hence, we see surplus labour at AAI. Profit Based Factors The following graph shows the comparison of the airports across different profit based factors: Relatively speaking, AAI has : Low operating profit per passenger This is mainly because of inefficiencies in the operations of AAI.

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Relatively speaking, AAI has : Low passengers per employee Low staff cost per employee High percentage of staff cost in total cost Gap Analysis Based on the above factors, the following major developments for the business models of Indian airports are forecasted: Workforce rationalization As the airports get privatized, there would be increasing pressure to increase efficiency. This would lead to cost cutting. As staff costs as a percentage of total costs is high for Indian airports(with low staff cost per employee), staff costs would be one area which would see a downward revision. In the recent privatization of Delhi and Mumbai airports, this was a major area of concern as the unions of both airports went on a strike protesting against privatization. The government had already included a clause in the RFP stating that the JV had to retain at least 40% of the workforce. Increasing contribution of non aeronautical revenues As the mindset towards airports shifts from being infrastructure providers to businesses, airport operators would look for new sources of revenue generation. As non aeronautical revenues have proven to be a

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good source of revenue for airports worldwide, Indian airports are bound to move in this direction. There are certain shortcomings of this study as detailed below. These should be considered along with the results: AAI(which comprises of a number of airports) has been compared to individual airports(except for BAA).AAI includes certain inefficient airports that have to be maintained to provide connectivity across the country. The airports were chosen according to the ease of availability of data. Hence, the airports compared may not be suitable peers.

12.

Recommendations

The Naresh Chandra Committee report suggests a number of ways to improve the state of Indian airports. Some of them are: Separate Economic Regulator This is to ensure active regulation of the sector along with checking malpractices. TRAI (Telecom Regulatory Authority of India) has played a similar role in the area of telecommunications and it has been very successful in conflict resolution. Reduction of airport charges This is seen as a way to bring them in line with international prices. For example, Mumbai airport is the 49th most expensive airport (IATA 2004) but it is nowhere near its peers (Hong Kong, Los Angeles) in terms of the infrastructure. The loss in revenue can be compensated by greater contribution from non aeronautical revenues. Although the analysis shows that Indian airports are way behind foreign peers in terms of infrastructure and performance, the government has taken corrective action in order to improve their state. The sheer potential of air travel in India makes it a very lucrative market. This has increased interest in the sector. The government is still in a learning mode as far as airport infrastructure provision is concerned. It has experimented with BOO in the past through the Cochin Airport and recently with 30 year concessions for Delhi and Mumbai Airports. It will be interesting to see how the government balances

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the expectations of its coalition partners and at the same time ensure efficient and world class airports for its populace. The good news is that the government realizes the opportunity and is prepared for taking decisive decisions for the same. The future growth and performance of airports will depend to a large extent on the political will and the ability of the government to garner support for the ongoing initiative.

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13.

HIAL Market Research Report

AIM/ OBJECTIVE OF THE RESEARCH: To know customers price perception. To make them aware that the prices are same as the MRP. To know which category is most preferred by the passengers and why?

To know what other product categories are expected by the passengers. To know which other brands are expected to be the part of the shoppers stop at airport. To know the passengers insights about impulse purchasing.

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Q5.Do you outlets?

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Research Analysis:

1. Average age group is 33, who prefer travelling by air and also prefer shopping at the airport retail outlets. 2. While shopping at the airport most of the passengers do a spontaneous purchase. Thus maximum of them are Impulse Buyers. 3. Most of the passengers do buy products at the airport retail outlets which shows that they are not cost conscious. 4. There is a very slight margin between the passengers who shop and havent shopped at Shoppers Stop(airport outlet) and their experiences shared rate to good to excellent.

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5. Passengers are well aware that the prices at Shoppers Stop(airport outlet) are same as that of the MRP. Airport Bus Gate Level Survey : AIM/ OBJECTIVE OF THE RESEARCH: To know the passengers experience at the bus gate levels. To know which other outlets/facilities which are required to be initiated in this area. To know the passengers insights about impulse purchasing. Also to know which is that item/product which they prefer to buy from this area.

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Survey Analysis: 1. Average age group is 30, who prefer travelling by air and also prefer shopping at the airport. 2. While shopping at the airport most of the passengers at times do a spontaneous purchase. 3. Food and Beverages is the most preferred product category followed by Magazines and Newspapers. 4. There is a very slight margin between the passengers who spent time at the Bus Gate Level. 5. Passengers a looking for a provision of a gift shop for their last moment purchases.

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References:
www.fincorp.org/ www.hyderabad.aero/to-from-airport.aspx www.foolonahill.com/mbaaviation.html www.mymilestogo.com/.../airports-ac-and-retail-opportunities.html www.keynoteindia.net/.../042_GMR_Infrastructure_InitiatingCovera...

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