Modernisation of Airports: Will it benefit the Express Industry?

Civil Aviation is the fastest growing arm of India�s transport infrastructure. Passenger and air cargo traffic have increased manifold in the post-liberalisation phase (Figure 1). The government�s open sky policy and liberal air service agreements have led to the presence of a large number of foreign players, which has resulted in traffic congestion and delays at a majority of the airports.

Figure 1: Trend of Passenger and Cargo Traffic

Source : Airport Authority of India,

http://www.airportsindia.org.in/traffic_news/mar2k8_trafficnews.jsp

The government has taken a number of measures to improve the airport infrastructure for the country. It has drawn up a plan to modernise 37 non-metro airports. Several measures have been taken to lure private investment in airports. The government has invited private participation in the modernisation of major airports such as Delhi, Mumbai, Bangalore, Hyderabad and Cochin. It has also allowed 100 per cent foreign direct investment (FDI) in greenfield airports, maintenance, repair and overhaul (MRO) organisations, pilot training and technical institutes and up to 74 per cent in ground handling services through the automatic route. Private developers are allowed to set up captive airstrips and general airports 150 km away from an existing airport and there is 100 per cent tax exemption for airport projects for a period of 10 years. In addition, the government is developing Nagpur as an air cargo hub. To handle express/courier consignments, a dedicated courier terminal has been established at Chennai Airport.

As the express delivery industry is largely dependent on air transport, it has benefited a lot from the modernisation programme of airports. The Indian express industry, which provides value-added, integrated time-bound, door-to-door delivery of documents, parcels and merchandise goods, at present valued at Rs.90 billion as compared to Rs.71 billion in 2005-06, has seen an annual growth rate of 25 per cent. According to a study conducted by the ICRIER and IIM (Kolkata) for the Express Industry Council of India (EICI), despite the global slowdown, the industry will manage to grow between 10 and 15 per cent in the next two years. It supports various export-oriented industries like electronics, telecommunication, IT, banking, retail, auto-components, textiles and apparel, gems and jewellery and pharmaceuticals. Due to global competitiveness, all major global players such as FedEx (Federal Express), DHL (Dalsey, Hillblom and Lynn), UPS (United Parcel Service) and TNT (Thomas Nationwide Transport) have established their presence in India in this segment. To facilitate trade, many express companies and their councils have taken up dedicated space in airports for cargo clearance. For example, EICI has a common user facility at Delhi and Mumbai airports while DHL and FedEx have developed gateways in Delhi airport. Deccan 360 has made Nagpur the base for its air cargo operations. To give greater importance to this sector, Indian customs have separate regulations for faster clearance of express cargo.

Although airport modernisation has facilitated the express industry, there are still some areas of concern. One problem area has been the adequacy and cost of space and allied facilities made available to the express delivery services industry. In the survey, express companies have pointed out that there is no uniformity in the usage charges of equipment in privatised airports. For instance, in Delhi, Mumbai and Chennai, the usage cost of an X-ray machine is around Rs.0.75 per kg, but at Bangalore airport, it costs Rs.1.5 per kg. Besides, since the government is planning to implement ground-handling restrictions that will force express companies to use designated ground handling agents, the cost of equipment usage is likely to increase.

Second, gateways do not often get prime locations. Private airport developers are keener to provide prime slots to hotel, retail, city side developers, parking lots and other lucrative businesses, which provide them with non-aeronautical revenues and considerable profit. In fact, in Delhi, the gateway is located next to the Haj terminal and during the Haj season, operations are badly affected. Warehousing facilities are small and congested and there are hardly any cold chain facilities though these are clearly needed to reduce wastage. The domestic terminal does not even have covered space for storage of cargo; in the rainy season and extremely hot conditions, consignments get damaged. Unlike most international airports, in India, there are no facilities for transfer of cargo between the domestic and international terminals.

These are genuine concerns, which should be taken into account in the airport privatisation master plan. The master plan should estimate the expected growth in cargo traffic volume and allocate space accordingly. Since the high cost of infrastructure will increase the already high logistics costs in India, space should be provided for cargo facilities at concessional rates. The government should also ensure that private developers bring down the charges for using equipment. The express companies pass on such costs to their clients � Indian businesses � and hence, affect the latter�s global competitiveness.