In the continuing series of interviews with Bengaluru International Airport Limited (BIAL) CEO Marcel Hungerbuehler on the first anniversary of Bengaluru International Airport, yesterday we focussed on the past. Today in part two we focus on the present and more specifically revenue streams.
Part 2 – Revenue streams
Q1. Can BIAL provide a rough break up of revenue streams. Passenger, Flight Operations, Cargo, Non-Aero ? Values are preferred.
Q2. The slowdown and resultant financial difficulties of airlines is impacting all airport operators. How is BIAL coping ? In particular with Kingfisher Airlines which is leading the industry in losses and for whom Bangalore is the base.
Q3. Globally airports are increasing the reliance on non-aero revenue and crossing the 60% mark. How and by when does BIAL plan to reach this?
Q4. How critical is UDF (User Development Fee) to BIAL operations ? For how many years can passengers expect to pay UDF?
Q5. Given the slowdown in aviation, why is BIAL not using the land to promote non-aero revenues faster ?
Q6. What support or awareness does BIAL require from government, from industry, from citizens ?
Q7. With the introduction of cost recovery on freight, BIA is fast becoming an airport which is high in cost to do business in. At a time when industry is seeking to curtail costs, how does BIAL intend to deal with potential challenges like diversion of freight business to alternate ports etc.
Revenues from any airport are divided into aeronautical and non aeronautical. We have just completed a year of operations and still stabilizing. However, the bulk will come from aeronautical revenues, of which UDF forms a significant component. Revenues from parking, advertising, retail, Food and Beverage, etc. are considered traditional forms of non aeronautical revenue streams.
However, the concepts of airport cities and aeronautical SEZs (Special Export Zones) are fast catching on in India and in the coming years will form a major chunk of the airport’s non aeronautical revenues. The slowdown as you are aware is not only in the aviation industry, it is also in the real estate market. BIAL is currently in talks with developers and will begin the construction of the airport city in the first half of 2010.
Large investments are required to build infrastructure like roads, water supply and sewage for the airport city and SEZ. The time frame for them to break even is long – it could take 10 to 15 years to begin yielding profits. BIAL envisions the airport city to be a flourishing destination where people come to the airport not only to fly, but also to shop, eat and do business. It will be unfair to expect someone who comes from the city to shop for a shirt or watch a movie, to pay for infrastructure used by another to fly. Hence, profits from one source is not used to offset the other.
Retail is a key component of the non aeronautical services offered at the airport and also drives the overall passenger experience. Our expectations from the retail segment are modest given that it is a relatively new concept in India. However, our concessionaires have meticulously derived their concepts and best efforts are on to ensure we exceed our customer expectations.
UDF is classified as an aeronautical revenue source, used for the development, management, maintenance and operation of the airport and is charged only to embarking passengers. World over UDF (sometimes simply called “passenger fee” or “airport tax”) is charged to passengers and it has not been a deterrent as the passenger understands that it is an essential source of revenue for the sustenance of the airport. Gradually in India too, this concept of the user paying for the infrastructure he uses will gain ground and acceptance. Just like the way a passenger pays toll to access a highway that is in turn utilized towards the upkeep and maintenance of the said highway, similarly, UDF is charged.
Cost recovery is not imposed on trade by BIAL. [Editor’s note: Cost recovery has been imposed by the Government of India. It is applicable at only Bangalore and Hyderabad airports. A most unfair approach from the government in my opinion.]. As far as operating costs are concerned, Bengaluru International Airport offers competitive rates at the cargo terminals. The add-on charges were not envisaged and they are a recent addition. We still believe that Government will reverse those charges so that trade is benefited. It is certainly unusual for a country to have all costs of Customs, a sovereign function, passed on to the trade. BIAL is committed to providing the best service and quality with international facilities at our both cargo terminals.
Please visit tomorrow for Part 3 – Airlines at BIA present and future