Airport Privatization: The Challenges and the Way Forward

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Privatization of state owned airline has been one of the prominent transformations in international air transport, where airlines in all but a handful of States had been government owned until recent times. The motives for privatization have been highly discussed, ranging from few purely economic considerations to improving operating efficiency and competitiveness, to a more pragmatic desire to reduce the heavy financial burden for governments for financing capital investments in new equipment. Since 1985, about 140 governments announced privatization for approximately 180 State-owned airlines.

Over View

Airport world is changing at a rapid pace; airports are facing capacity and financial constraints, and privatization of airports is being resorted to overcome such constraints.

Airlines are turning to bigger and larger aircraft, increasing consumer interests are some of the irritants and the thrust areas of airports.

Airport revenue accrues mainly from operational activities and the trend is to maximize the non-aeronautical revenue and enhance the overall earnings. There are some strategic options and management techniques to Balance Demand-Supply with organizational demands with the change of ownership and also the impact on change management.

Identified Challenges and Compacting Strategies

Privatization Options: The airports in India are inadequate for handling the increase and with India hosting the Commonwealth games in this year, upgrading airport infrastructure assumes prime importance. The problem is further compounded by the lack of resources with the government. Hence, the recent thrust on airport privatization. This Privatization also brings in much needed capital and the efficiency introduced by market forces. There are many ways to involve the private sector in airport infrastructure provision.

Responsibility for new investments

Although the responsibility of the private sector under a concession always includes the operation and maintenance of the system or facilities and the supply of the infrastructure service, it may or may not include the design, construction, and financing of the new infrastructure.

Legal Ownership

The legal status of assets built and financed by the private operator may also vary. Private ownership may give investors more protection and facilitate the financing of concessions by making these assets available as collateral.


Leases and concessions are generally granted for fixed periods. At the end of the specified term, most assets (including those financed by the concessionaire), as well as the right to carry out the activity, return to the public entity. The contracts' duration tends to reflect the number of years investors need to recoup their investment.

Airport Business Model and Privatization

Privatization of airports would affect their business models too. Airports have two kinds of revenue streams -aeronautical and non aeronautical. International airports tend to have a larger percentage contribution of non-aeronautical revenues whereas AAI (Airports Authority of India) still lags in this regard. The government has recognized this and the Greenfield airports at Bangalore and Hyderabad have been provided plenty of real estate to develop non aeronautical revenues. We start with an analysis of some international airports and the Airport Authority of India (AAI), with the purpose of benchmarking the airports. A number of revenue, profit and input/output based factors are identified for the purpose. This leads us to certain conclusions about the state of Indian airports.

Capacity constraints in airports: A Capacity constraint is one of the bottlenecks in air transport growth. The Capacity is the combination of runway and terminal capacity. The runway capacity is determined by the regulatory authorities, usually in terms of the number of movements taking into account such factors as the physical characteristics of the runway and the surrounding area, types of aircraft involved and air traffic control capabilities. Whereas, terminal capacity is the amount of passengers and cargo which the airport can accommodate in a given period of time. Sometimes referred to as passenger or cargo throughput. Type of passengers or passenger mix can influence the rate of passenger throughput. Aircraft size is another factor that can affect terminal capacity. Airport capacity can adversely affect by external factors such as environmental restrictions and air traffic control capabilities.

When the air carrier demand at an airport exceeds the availability of slots, the airport can then be considered capacity constrained. To a great extent capacity constraints are eased out through International Air transport Association (IATA), schedule co-ordination conferences, in which well over 260 airlines participate and scheduled, are adjusted through bilateral discussions. Capacity is essentially controlled through regulatory framework within slot allocation mechanisms are employed at global, regional and national levels.

Liberal air services agreements with multiple designation and gradual removal of capacity restrictions have enabled increases in the number of air carries and air services, thereby putting additional pressure on existing airport capacity and it would continue to challenge the airports.

Capacity constraints include not only limited physical infrastructure like

runways and terminals but also administrative restrictions like night curfews,

noise & emission budgets or noise & emission limits, which all restrict the

overall level of air travel demand an airport is potentially able to serve. If

available airport capacity lies below the present or future demand potential of

a particular airport, the airport choice of individual air travelers will be affected

and will thus differ from a no-capacity-constraints case. Here demand

potential of an airport is defined as the number of air travelers who choose a

particular airport without capacity restraint. However, airport choice varies

considerably when travelers are faced with capacity constraints, and thus

depends on the gap between demand potential of an airport and the demand

at capacity level. Thus it would seem appropriate to incorporate the impact of

capacity constraints in a systematic and coherent way when planning studies

on future airport choice.

Air traveler's first choice of a departure airport may not necessarily be a

realistic one in a capacity-limited airport environment where demand exceeds

supply at some airports. Therefore some air travelers will opt for second

choice flight offers from other airports. The existence of sufficient supply at

every airport, however, is a basic assumption of many passengers' airport

choice models.

Financial Constraints: According to recent forecasts released by Airports Council International (ACI), over the next 15 years, global air passenger traffic will grow by over 4% per annum. This means that by 2020 something like 7 billion people will be using the world's airports, and, with freight traffic growing at an even greater rate of around 5.1% per annum, reaching some 170 million tons in 2020, it is clear that greater airport capacity is a precondition for achieving the forecast growth.

Airport operators spent more on new capacity than ever before and continued investment in infrastructure development at many congested hubs is set to continue. Spending on new airport technologies is also increasing, driven not only by the need to cater for growing consumer demand, but also by the need to reduce congestion and improve passenger throughput, safety and security.

India's civil aviation sector has grown by 22 per cent in the first six months of this year, according to Boeing India President Dinesh Keskar. Keskar said the growth rate from January to June varied between 19 to 25 per cent, averaging a healthy 22 per cent, and that this rate was likely to continue over the rest of 2010. India Strategic magazine quoted Keskar as saying during the just concluded Farnborough Air Show that load factors had already gone up with a majority of the flights in India going full. Coupled with that, the airlines had increased their fares by about 15 per cent, and that had yielded net profitability to them for the first time in two years. "Cumulatively speaking, everybody is net plus," India Strategic quoted him as saying in its coming issue.

The Indian aviation sector is expanding fast. India's airports currently handle around 42 million passengers annually, of which the four international airports -Delhi, Mumbai, Kolkata and Chennai - together account for two-thirds (and nearly half of total revenue). Domestic and international air traffic is projected to grow at an annual rate of over 5 per cent. The increase in the levels of passenger and cargo air traffic has placed a heavy strain on the four main airports and has highlighted the need for substantial investment to develop and expand existing facilities. Current projections are that by 2017, India's airports will be handling cargo traffic of one million tones. Delhi and Mumbai airports will soon

face major capacity constraints. It is estimated that the current airport infrastructure can support a total rise of only 20 per cent. in passenger traffic and 10 per cent. in cargo, pointing to the likely saturation of Indian airports in the very near future. In response to this, the Government is now looking to lease out Delhi and Mumbai to the private sector as part of its extensive modernisation and growth plan for the sector.

Strategic options and management techniques to Balance Demand-Supply: Collabrative demand and supply planning allows consumer products companies to develop winning strategied and tactics across the supply network. Forecasting, the traditional gauge of market demand, has been viewed as half art and half science, and almost always does not predict demand as accurately as needed. To get a more view of demand, you have to collect and comprehensive digest data from many different sources. Whether it's point of sale data from retailers, actual orders from customers, promotional plans from marketing, or forecasts from your sales team, you must harmonize and consolidate these data streams to get a clear picture of demand. Armed with an accurate projection of what the market will bear, you are better equipped to manage planning processes, synchronize supply activities, and mitigate supply risks.

Organisational Impact on ownership Change: The pace of change is ever increasing - particularly with the advent of the Internet and the rapid deployment of new technologies, new ways of doing business and new ways of conducting one's life. Organisational Change Management seeks to understand the sentiments of the target population and work with them to promote efficient delivery of the change and enthusiastic support for its results.

There are two related aspects of organisational change that are often confused. In Organisational Change Management we are concerned with winning the hearts and minds of the participants and the target population to bring about changed behaviour and culture. The key skills required are founded in business psychology and require "people" people.

Organisational Change Management is a vital aspect of almost any project. It should be seen as a discrete and specialised workstream. Why then, you might ask, do we discuss it as part of the Project Management work. Unfortunately, it is common to find that the human component of the project is not recognised as a separate element of the work. The project management team frequently have to do their best to ensure that a technological change is successfully implanted into the business. In the worst-case scenario, the project leadership do not see this as part of their responsibility either and blame the organisation's line management when their superb new technical solution is not fully successful when put to use.

Successful Organizational Change

Different personal responses to change: Individuals may be scattered across the three phases of the transition curve (see diagram) depending on their personal responses to change.

The result is a misalignment of emotions, understanding, effort and commitment that impacts negatively on the performance of the individuals and the organization as a whole.

Phases of the Transition

There are typically three distinct phases of transition that an organization and its employees will pass through, as shown in the following diagram.

All employees have three basic requirements to navigate change successfully:

Structure -- Strategies that shape temporary systems and new courses of action for moving effectively through the transition process such as policies, procedures and job descriptions

Information -- Data, facts, advice, wisdom, news, tips and other knowledge they can apply to navigate the present and future

Support -- Understanding, bolstering, championing and a nurturing environment to create safe passage through times of transition.

Cultural Change

Apart from career concerns, the other area of difficulty during organizational change is culture. Many cultural issues are actually turf wars or politics in which people are fighting for power. Leaders have the greatest influence in building the new culture and must model the behaviours they want to see in the organization. It's best to avoid comparing differences or looking back to the way things were. Look ahead to the future -- culture audits can be time consuming. The new culture must be built as quickly as possible.

Employees need to be told that the criteria for business decisions will be the success of the new organization, not what has worked well in the past. The changes are creating new opportunities, and with them a need for new skills. Each employee must clearly understand the business rationale for the change as well as their role in making the new organization successful. If not, they will feel they are working in the dark. It is not uncommon for employees to say, "don't know why we did this, who I'm working for or what I'm supposed to do." Employees need a roadmap and a sense of what is at the end of the journey. Without it, they may be at work physically, but mentally they are miles away.

If employees have to be displaced, outplacement and appropriate support should be provided not only for them, but also for people who stay in the organization. Often the stress level for people who remain is greater than for their colleagues who have left. They often experience "survivor" guilt while grieving for lost work groups and former jobs. They have to do more with less in a changing workplace where policies, procedures, systems and relationships are still confusing and unclear.

When changing or amalgamating culture, speed is of the essence -- the longer it takes the longer the dip in productivity and morale and the harder it is to put things right again.

Leadership Strategies

Decisiveness at the top of the organization is crucial to keep the pace of change moving. If the pace feels too quick, then it is probably right. Slowing the pace to accommodate overwhelmed employees is not the right strategy. Make sure people are engaged in important work, clarify top priorities, put your high achievers in stretch assignments, give them permission to make mistakes and celebrate small successes.

Visibility is also important. Once the key messages have been decided, it is important to "walk the talk". Managers ought to spend 80 percent of their time communicating with employees. This means more face-to-face meetings and, if that is not possible, send personalized e-mails and voicemails. The most common complaint from employees is that they feel their manager doesn't have time for questions or discussions. Create a culture that encourages open and honest communication at all levels of the organization.

The new buzz word "world Class" has emerged and quite a few airports of civil Aviations have also duly filed their flight plan to destination 'World class' and are now obsessed with 'Vision', 'Mission', 'Values' and 'Strategic Objectives' to reach their destination.


The airport management as a profession was established because of a need that evolved during the past 80 years of civil aviation expansion. An analysis of the airport organization structure across the globe highlights the fact that the organization was primarily focused on appreciation of thrust areas. Airport revenues accrue mainly from aeronautical and non-aeronautical activities. Airport world is changing at a rapid pace where it had to face many challenges. Some of the immediate challenges for airports are; Security, privatization, capacity constraints in airports, economic activity, congestion in airport and airspace and automation. These challenges have many solutions and strategies where the given strategies can give a bit of solution to the challenges.

There are some more challenges which are faced by the airports such as; ground access, CNS/ATM, Environmental constraints. Airlines are turning to bigger and larger aircraft, financial constraints, increasing consumer interests, etc... These may change the airport management to give the best, efficient, effective services to the customers in future. Improvised new technology can be implemented for the automation which can increase the capacity constraints of the airports as well as airlines resulting in the growth of GDP of Aviation Industry and Indian Economy.