Final Exam-Sandeep Taterway:61310057
Memo to AAI
The advent of Public Private Partnership (PPP) model in infrastructure sector especially in airport development presents a tremendous opportunity for AAI to develop a sustainable, profitable and forward looking approach to solving myriad of problems plaguing the Indian airline industry. The genesis of the solution lies in the ability of AAI to attract private capital. The shift from state owned airport model to PPP model though has been slow and is currently limited to a few major airports in the country but it has infused the much needed capital in the industry, which in turn reduces the AAI’s dependence on Government’s grants. My model emphasises on proliferation of this PPP model which will ensure consistent cash flows to the industry and will also help in improving efficiencies within the system. The interest of private players in this industry is driven by two perspectives. Firstly by fast growing passenger and freight traffic and also by upside potential in non-aeronautical revenue. Thus in our quest to improve AAI’s sustainable profitability we need to address both these requirements of the private players. In my opinion we can approach them in the trailing manner. Generating passenger and freight traffic
Due to requirement of high upfront investments in developing and operating an airport, it becomes pertinent that such investments are offset by revenues from passenger and freight traffic. AAI should take adequate measures to generate growth in demand for airports. It is important to mention that airline industry is under constant threat from high speed rails and developing road network, especially for short haul flights. A price sensitive consumer, typically a middle class leisure traveller, which comprises almost 50% of the industry, is likely to switch to a cheaper mode of travel if prices of airlines are very high, thus reducing demand for airports. Thus for airlines to be...