Why India’s Airport Sector Is Attracting Billions in Private Investment

India’s aviation sector is on an unprecedented growth trajectory. After the United States and China, India has emerged as the third-largest aviation market worldwide. In 2024 alone, around 174 million passengers took to the skies, accounting for 4.2% of global air traffic. By 2040, projections indicate this figure could rise to 12.2%, translating to nearly 1.1 billion annual passengers.

To accommodate this surge, airport infrastructure must expand rapidly. Presently, India has 163 operational airports, but the long-term goal is to reach 350–400 airports by 2047. Recognizing the scale, the government is involving private airport operators to share the development load. Major private players are already investing heavily, anticipating the sector’s long-term potential.

Adani Airports, India’s largest private airport operator, plans to inject $15 billion (₹1.35 lakh crore) into airport infrastructure by 2030. GMR Airports has also announced a ₹14,000 crore expansion plan for Hyderabad International Airport. While Adani pursues aggressive expansion, GMR emphasizes profitability and operational efficiency.

Despite headlines suggesting immense profits, a closer look reveals that most private airports, including Adani’s, remain loss-making. The real question is why these firms continue investing vast sums in such a capital-intensive sector.

The Evolution of Airport Privatization

Before 1990, all Indian airports were government-operated. Post-liberalization, passenger demand surged, creating urgent pressure to expand terminals, runways, and facilities. Limited public funds led to the adoption of the Public–Private Partnership (PPP) model in the early 2000s.

Under PPP, the government provides the land, while private firms develop, manage, and expand airports. Key milestones include:

• Delhi and Mumbai Airports (2005) – Delhi under GMR, Mumbai under GVK Group
• Hyderabad and Bangalore Airports (2008) – Hyderabad under GMR, Bangalore under Fairfax

Operators were given 30-year concession agreements, extendable by another 30 years. They paid a fixed percentage of gross revenue to the Airports Authority of India (AAI) – e.g., 46% for Delhi and 39% for Mumbai.

While this model benefited AAI, it constrained private operators. The capital-intensive nature of airports combined with high revenue-sharing obligations pressured firms to cut costs and limited returns.

Shift to the Per-Passenger Fee Model

In 2019, a new phase of privatization introduced a per-passenger fee (PPF) model, replacing gross revenue sharing. Six airports—Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram, and Mangaluru—were privatized under this system.

This model allowed better revenue visibility and optimization, awarding airports to firms offering the highest per-passenger fee. Adani Airports won all six:

• Lucknow: ₹171 per passenger (compared to ₹139 by AMP Capital)
• Ahmedabad: ₹177 per passenger (GMR had bid ₹85)

Adani later acquired Mumbai Airport from GVK, leaving India with two dominant private operators: Adani Airports and GMR Airports, each with distinct revenue-sharing structures.

Airport Revenue Streams

Airport revenue comes from two primary sources:

1. Aeronautical Revenue – fees tied directly to aircraft and passenger activity: landing, parking, terminal usage, aerobridges, and user development charges.
2. Non-Aeronautical Revenue – earnings from retail outlets, cafes, duty-free stores, lounges, car parking, hotels, offices, and advertising.

Aeronautical revenue is regulated by the Airports Economic Regulatory Authority (AERA) to keep air travel affordable. AERA calculates target revenue using:

• Return on Regulated Asset Base (~14%)
• Depreciation, operating costs, and taxes
• Minus 30% of non-aero revenue as a cross-subsidy

Non-aeronautical revenue remains unregulated, providing higher-margin opportunities for private operators.

GMR Airports: Strategy and Performance

GMR operates five airports—Delhi, Hyderabad, North Goa, Bidar, and Nagpur—and is building a new airport at Bhogapuram (Visakhapatnam), expected in 2026.

Revenue sharing under the gross model varies:

• Delhi – 46% to AAI
• North Goa – 37%
• Hyderabad – 4%

In FY25, GMR handled 116 million passengers, with Delhi alone accounting for 68% of traffic and 55% of revenue. Aeronautical revenue recently jumped due to AERA-approved tariff hikes, yet the company still posted an ₹87 crore loss, driven by high debt and finance costs.

The current strategy is limited capex expansion and focus on non-aeronautical revenue like duty-free, parking, cargo, and city-side development.

Adani Airports: Aggressive Growth

Adani operates eight airports, handling 96 million passengers annually, with Mumbai contributing 58%.

Plans include ₹1.35 lakh crore in capex by 2030. Revenue growth has been remarkable:

• FY25 revenue: ₹10,000 crore (3.5× growth in three years)
• ~49% from non-aero, 39% aero, 12% cargo/other services

Despite growth, Adani faces losses of ₹69 per passenger, prompting a shift to increase non-aero contribution to 70% by FY27, focusing on retail, duty-free, F&B, and city-side development.

Who Bears the Cost?

Privatization enhances infrastructure and passenger experience but often results in higher ticket prices, parking fees, and retail costs. Even government-operated airports face losses, with 70% of AAI airports losing money in FY24.

Global benchmarks show top airports earn $10–15 per passenger, far above Indian averages. Non-aeronautical revenue is key to private operator profitability.

Airport privatization brings better facilities and operational efficiency but could increase travel costs for passengers. The fundamental question remains:

Should airports prioritize modernization through privatization, or focus on affordability under government operation?

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