Will Zurich's bid for Jewar airport challenge IGIA's monopoly?

New Delhiā€™s Indira Gandhi International Airport
Flughafen Zurich winning the bid for the proposed Jewar airport in Uttar Pradesh is likely to bring a paradigm change to India’s airport sector, threatening monopolies for the first time, said sector experts. 

If the project is completed on time, Jewar airport — projected as the second such facility for the National Capital Region — will compete with GMR-owned Indira Gandhi International Airport (IGIA) from 2023 to attract air traffic. This could be a threat to IGIA’s monopoly on air traffic in north India, which has made it the crown jewel in GMR Infrastructure’s airport portfolio. 

Zurich Airport offered a revenue share of Rs 400.97 per passenger. GMR, which had the right of first refusal (RoFR), offered Rs 351 per passenger. It would have had the chance to match the highest bid only if its offer was within 10 per cent of it.

“GMR’s bid was aggressive and rightly so, as they were desperate to win it because of a lot of synergy it offers with IGIA. That Zurich was able to outbid GMR, which had a RoFR, is something extraordinary. It doesn’t happen every day,” said an executive of a financial institution which invests in infrastructure projects.
Jewar is about 80 km from IGIA.

A six-year-long moratorium over concession fees to be paid to the government may give a buffer to Zurich. But, in the long term, completion of the project on time will determine its ability to compete with Delhi, said experts.

“The winning bid marks the re-entry of Zurich Airport in India. What is defining is the entry of an experienced player in a market that has GMR, GVK, Fairfax, and Adani. Their bidding number underscores their understanding of the Indian market and how important they think it is,” said Sidharath Kapur, former executive director at GMR Airports.

Capacity crunch in Delhi and Zurich’s ability to offer better services may make Jewar airport popular among India’s airlines that are frantically expanding their fleets but facing infrastructure crunch at major airports. 

Delhi Airport is currently undergoing a Rs 9,000-crore upgrade to increase its capacity from 70 million fliers per annum to 100 million by 2022. 

“After 2022, when Delhi finishes its fourth runway and terminal expansion, it has limited capability to expand capacity. Naturally, airlines and customers will have no other option,” said an airline executive.

He added, “For an airline, peak-hour slots are crucial. There is little Delhi will be able to offer to airlines as all of them have been grabbed. So, for an airline like IndiGo, which expands rapidly, it will make sense to grab slots offered at Jewar.”

The executive added that airlines will not quit IGIA but will plan future growth keeping Jewar in mind. A lot will also depend on the Uttar Pradesh government’s ability to complete high-speed rail and road networks before operations commence at Jewar. This will determine the airport’s profitability.

GMR’s boardroom is seeking comfort from the fact that centrality of IGIA will always keep it more attractive than Jewar.

“Jewar is on the highway from Noida to Agra, 60 km away. IGIA is almost in the heart of the city,” said Saurabh Chawla, executive director (finance) at GMR Group.

He said, “Also, if you look at the income profile of Jewar’s catchment area, you will see it is slightly inferior to Delhi’s catchment area.” 

The catchment area will play a major part in Jewar’s success, said experts.

“In the initial stages, the challenge to profitability and attractiveness of a greenfield secondary airport, where the primary airport is owned by a competing entity, primarily depends on its ability to connect with the catchment area,” said Debayan Sen, head of India practice for aviation consulting firm Landrum & Brown.

Sen added, “The UP government’s ability to complete the high-speed rail and road network is going to be a significant determinant of profitability for Jewar.” 

Government-owned engineering consultancy firm RITES has suggested the options of road, rapid rail, and metro to connect Jewar airport with Delhi. It has identified two roadways, two rapid rail routes, and one metro route. 

Apart from this, the firm has also suggested widening of roads to connect Aligarh and Bharatpur, a distance of about 103 km. 

“Traffic shifts from primary to secondary airports are tough and time consuming, leading to prolonged losses. Connectivity is more important than catchment. Further Delhi, has headroom for growth over the next 6-10 years depending on traffic growth further accentuating the challenge,” said Kapur.

A study conducted by consultancy firm PwC said if proper connectivity is made the preference of customers and airlines may change in favour of Jewar. For instance, fliers going from Ghaziabad may take 1.9 hours to Jewar compared to 1.7 hours for Delhi Airport. 

However, once the Eastern Peripheral Expressway is operational, the travel time may go down significantly. Similarly, development of the Palwal Khurja expressway may also divert passenger movement from Faridabad to Jewar.

However, Zurich’s trump card to profitability can be international traffic. 

“I think Zurich, while bidding so high, factored in that international travel from India will expand significantly. An international passenger may not mind traveling for an hour to catch their connecting flight if services are better. And, Zurich’s connection and services with international airlines will help them to attract those airlines,” said an executive of a private company, who did not want to be named.  

Advantages for Jewar

  • Limited space for Delhi Airport to expand beyond 2022
  • Better facilities, lower airport charges
Disadvantages for Jewar

  • Connectivity issues with Delhi and major cities in western UP
  • |Weaker income profile of prospective flyers in the region

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