The presentation shows the competition that evolves between neighbouring airports. It also examines the strategies which airport operators can adopt to make the airport more competitive for their businesses. The second part deals with User Development Fee (UDF) pricing and application of crystal ball simulation on UDF.

1. Evolving Airport CompetitionCompetition & Pricing Faisal Khan

2. Presentation Plan Overview of Indian Airports Industry International Comparisons Secondary Airports in India – Will they be a reality? Multi-Airport Systems Airport Competition Forms of Competition Barriers to Competition amongst Airports Strategies for Airport Competition User Development Fee pricing Calculation Crystal Ball Simulation

5. History of Indian Airport Industry National Airports Authority + International Airports  Airports Authority of India by AAI Act, 1995 Pre-1993 AI and IA were the only Indian carriers Operated with old aircrafts and inefficient work practices No focus on developing traffic and weak aviation growth 1993 – 1995 Deregulation and entry of private airlines Start-ups entered and soon exited the market 1995 – 2003 Industry went into dormancy Aviation untouched by economic reforms of Govt. 2003 – 2006 Domestic open skies policy Announcement of airport modernization plans for Delhi and Mumbai, upgradation of 35 non-metro airports and launching of Greenfield airports Liberalization of international sector

6. History of Indian Airport Industry contd.. 2006 – 2007 Traffic levels increased owing to high GDP growth and increasing disposable income Bullish fleet orders introduced @ 6-6.5 aircrafts/mth whereas actual growth was @ 3 aircrafts/mth High congestion at airports and increasing delays Inadequate supply of pilots and engineers 2008 – 2009 ATF price hike - oil reached 150$/barrel Slowdown in economy resulted in decline of air traffic AERA formed – to determine tariffs, user charges and monitor set performance standards 2009 – beyond More favourable environment for aviation sector Greenfields airports developed and non-metro airports upgraded Projected investment in 11th 5-Yr plan in airport infrastructure is INR 30,968 Crores – 70% to come from private sector

7. INTERNATIONAL COMPARISONS

8. Number of airports covering the population Source: www.pppinindia.com

9. Comparison of Average Runway Length Source: Author’s Self-Analysis

10. Comparison of Aero & Non-Aero Revenues Source: Web Sources

11. Passenger growth comparison for 20 years Source: Airport Council International

12. Secondary Airport in India – Will they be a reality?

13. India would be 3rdlargest in terms of passenger throughput by 2027 Source: CMIE database

14. Source: CMIE database Source: Mint Newspaper, 11th November 2010

15. Multi-Airport Systems

16. Set of two or more significant airports that serve commercial traffic within a metropolitan region Multi-Airport systems serving the NY Metropolitan region Source: Journal of Transportation Engineering Multi-airport systems Worldwide Source: Journal of Transportation Engineering

17. Secondary Airport Comparisons

18. Porter’s 5 Forces Model LOW MODERATE MODERATE MODERATE LOW Source: Author’ Self-Analysis of level of threats

19. Forms of Competition

20. Competition for shared local market Airports in close proximity compete for both passengers and air services Airports in London Heathrow  International Flights Gatwick  Charter Flights Stansted  Low cost Airlines London City  City and Business passengers Luton Domestic and Charter flights Growth of low cost carriers has given opportunity to smaller airports to compete with the established airports

21. Competition for Connecting Traffic Connecting traffic at an airport is a major component of the total traffic handled at an airport For all connecting traffic there are alternative connecting points A traveller flying from Los Angeles in US to Mauritius can travel via a point in Asia (HK, Singapore, Kuala Lumpur) Europe (London, Paris, Frankfurt) Middle East (Dubai) Australia(Sydney) Connecting traffic can easily shift from one airport to another if cheaper, faster and more convenient connections become available

22. Competition for Cargo Traffic Cargo traffic can make up a major proportion of an airport’s traffic base ACI estimates that cargo accounts for approximately 17% of annual airport revenue Cargo traffic is highly price sensitive and can easily shift to alternative routings and hence highly competitive Hamilton airport handles approximately 100,000 tonnes of cargo each year that otherwise would likely have passed through Toronto International Airport Hamilton has lengthened its runway it is now competing for intercontinental cargo flights as well

23. Destination Competition Airports are part of the overall tourism package offered by a destination Quality, cost and scope of service offered at by an airport impacts on the overall attractiveness of a destination Overall attractiveness of the destination served by the airport increases if the scope and frequency increase Convention Markets Tourism through Cruise Liners

24. Factors influencing emergence of Secondary Airports

25. Congestion at the Primary Airport creates externalities and degraded level of service decreasing attractiveness ofprimary airport results in increase of attractiveness of closed located airport Air Carrier Entries at the Secondary Airport Entry of Southwest Airlines at Providenceand Manchester airports Airport Infrastructure Wide body aircrafts runway requirement – 7000 to 10000 feet Narrow body jets runway requirement – 5500 to 6900 feet Connecting passengers at the Primary Airport emergence of secondary airport is more likely to happen at an airport where connecting passengers are notpredominant

27. Use of smaller aircraft

28. Uneconomical passenger numbers

29. Use profits from other routes to maintain route domination

30. Exclusive rights to provide Ground Handling Services

31. Can charge competitor high prices to strengthen its position

33. Operating costs increases for airport operatorsDelivering enhanced service quality whilst working with a tighter cost base Investor demand steady returns in uncertain climate Increased focus on managing costs and delivering efficiency Regulatory changes Enough incentives should be in place for the operator to undertake such huge investments

34. Strategies for Airport Competition

36. Baggage Processing – RFID

37. Flexible Airport Design

38. Service Provision and Third Party Vendors

39. Curfews and Noise Quotas

40. Operate late night flights from NA to Asia in order to allow passengers to connect onto the morning flights out of Asian airports

42. Dual boarding bridge

43. Swing Gates

44. Incentive Pricing

45. Renting the gate for entire day for a fixed sum enabling airlines to reduce its unit costs

46. Will enable better use of airport capacity

49. Much targeted approach which match airline’s needs with the offerings at the airport

50. Passenger Marketing

51. Communicate flight options to the tour operators, travel agents, freight forwarders and the public at large

52. Participation inconferences, road shows and advertising in the local and national press

53. Advertise on lower cost and more convenient parking

54. Integrated Marketing Approaches

56. Difference between UDF & ADF Source: Author’s Self-Analysis

57. Assumptions

58. Methodology NPV of the PAT from aeronautical and non-aeronautical revenues (30%) = NPV of the expected post tax return on the capital employed

63. Crystal Ball Simulation

64. 1st Assumption 2nd Assumption 4th Assumption 3rd Assumption

67. Conclusion

68. India’s economic growth in trade and business would be crippled if the growth of this sector is not supported by investments in the airport infrastructure Supply needs to be ahead of demand so that expansion and upgradation can take place in a phased manner wherever and whenever required India can begin to see secondary airports emerging in quite a few cities Market forces of competition can start playing between these airports provided government or the regulator doesn’t intervene too much through the regulations Multi-airport systems in India as a whole can benefit the larger region – A win-win situation for both society as well as airport operator

69. Non-aeronautical revenue brings in significant revenue stream of cash flows There is a 45.24% probability that NPV of INR 181.95 or greater would be obtained given the assumptions made for Ahd airport NPV of PAT is most sensitive to the short term growth (till 2017) in international and domestic passenger growth Long term view of the same would play a key role in establishing the airport operator as a significant player of the industry

70. References Dr. Michael Tretheway and Ian Kincaid. Competition between airports in the new Millennium – 8th Hamburg Aviation Conference. Jessica Loughnane. The Evolution of the Aviation Sector towards contestability amongst airports – Student Economic Review, Vol. 19, 2005. Richard de Neufville. Low-cost airports for Low-cost Airlines AERA Consultation Paper No.3/2010-11 – Proposal of AAI to levy UDF at SardarVallabhbhai Patel International Airport, Ahmedabad Position Paper on the Airport Sector in India by Department of Economic Affairs, Government of India Indian Aviation: A Review of 2009 and Outlook for 2010 by CAPA India A Vital Role for Airport Economic Regulatory Authority by CAPA India Philippe A. Bonnefoy and R. John Hansman. Emergence and Impact of Secondary Airports in the United States Centre for Monitoring Indian Economy (CMIE) Database CRISIL Research Indiastat.com

71. Thank You