Powering growth through airport hubs

Business Standard

As the aviation market in India deepens, the creation of hubs for regional connectivity, international travel, mega- tourist destinations and freight connectivity will ensure the flow of more foreign

Jayant Sinha & Akhilesh Tilotia

Airports and airlines share a symbiotic relationship. Large airlines make big airports their hubs: The airport gets a dedicated anchor bringing in passenger footfalls and the airline builds out a full “hub-and-spoke” model centred around this airport.

Typically, large airlines operate out of hubs: Such airports are among the largest in the world. Flag carriers like Emirates (244 planes in the sky in calendar year 2015), Etihad (121 planes) and Singapore Airlines (117 planes) have made their home city of Dubai (which handled 78 million passengers in CY2015), Abu Dhabi (23 million) and Singapore (55 million) their hubs. Large commercial airlines such as American (1,064 planes) or Delta (891 planes) hub at Dallas (66 million) and Atlanta (101 million), respectively.

As the Indian aviation sector grows two to three times its present size over the next decade, many hubs will emerge in our fast-growing urban clusters. Note that Delhi and Mumbai are already global-scale airports each catering to more than 50 million passengers annually. With the growth forecast over the next decade, passenger traffic in Delhi and Mumbai could both exceed 100 million passengers per year.

Hubs as network force multiplier

Passengers look to an airline to connect them from point A to point B. If A and B are large cities, say, Delhi and Mumbai, several point-to-point connections are available. However, if the cities are far away, with no large natural traffic flow between them, for example Kochi to Chandigarh, it makes economic sense for airlines to route the passengers via Delhi. A hub thus gets created in Delhi.
A hub connects multiple nodes in a network. The hub, hence, is not just a point where airlines bring in customers from across the country but also a point from where it disperses people across the country and across the globe. Hubs act as a force multiplier for the airline network since the power of a network grows exponentially as the number of nodes increases.

A land of many hubs

Typically, hubs arise as the aviation market deepens. Initially, traffic is concentrated among top city pairs. As traffic develops in smaller cities, they seek air connectivity and airlines respond by connecting them to their hub locations. In India, even as the Delhi-Mumbai traffic (consistently the busiest route in India) has grown 1.6 times over the last decade to 6.2 million trips a year, as a proportion of the overall traffic, this route now sees only 6.9 per cent of all domestic passengers, down from 15.4 per cent a decade ago in CY2005.

Several types of hubs could develop in the next decade: (1) for regional connectivity — the regional metro can become a meaningful hub, such as Guwahati; (2) for international travel — global metros such as Delhi, Mumbai, and Bengaluru could provide direct flights to global cities; and (3) as mega-tourist destinations (for example, Goa, Jaipur, Varanasi), which become hubs funnelling traffic to major tourist circuits.

Similar hubs are also possible with respect to freight or maintenance, aerospace manufacturing, repair or overhaul (MRO) opportunities. As the country becomes one market with the introduction of the goods and services tax (GST) and the aviation market expands rapidly, hubs catering to logistics, MRO and specialised manufacturing could take root. For instance, in the USA, Memphis in Tennessee has become a major freight hub due to the presence of FedEx. Nagpur and Hyderabad being central to the country could be possible locations for freight hubs.

Hubs will likely develop naturally when many more airports in the country become operational. The Regional Connectivity Scheme expects to increase the number of operational airports in the country from 75 at present to between 125 and 150 in the next few years. This is sure to accelerate hub creation in India.

Developing our hubs

A large airport hub creates a positive feedback loop in the economic region: It caters to and drives economic activity. This creates large direct and indirect employment generation opportunities. Further, hubs — given the large spaces that they require are built on the outskirts of the city — open up new areas for residential and commercial development, thereby creating significant economic and social capital.

Due to the large economic returns generated by airport hubs, they are self-sustaining and can be financed by the private sector even as they generate significant tax revenues for the government. Long-term investors, such as global sovereign and pension funds as well as insurance companies, view airports as highly attractive investment assets. This perspective has been further enhanced through recent changes announced in the National Civil Aviation Policy for airports including: (1) 100 per cent foreign direct investment; (2) liberalised end-use restrictions for land allocated for commercial use; (3) 30 per cent of non-aeronautical revenues applied to reduce aeronautical charges; and (4) focus on multi-modal connectivity.

State governments recognise the power of airport hubs. Land is being acquired, and airport development is being bid out. Thus with rapid demand growth, supportive policies, and attractive economic returns in place, we expect lakhs of crores of rupees of private sector investment to flow into airport hubs in the next decade.

Jayant Sinha is minister of state for civil aviation and a member of Parliament from Hazaribagh, Jharkhand. Akhilesh Tilotia is his officer on special duty and the author of The Making of India: Gamechanging Transitions. The views are personal

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