Improving incentives for airport managers in India

Improving incentives for airport managers in India

by Ajay Shah and Karthik Suresh, Bloomberg Quint, 14 April 2023

Last month, SKYTRAX announced the 2023 winners of the World Airport Awards. Changi Airport of Singapore took the top spot. But to find India's airports in the list, one had to scroll far down below. Delhi airport was ranked 37^th, while Bengaluru, Hyderabad and Mumbai's airports were at 61^st, 63^rd and 65^th positions respectively. What is amiss?

In their evaluation, SKYTRAX considers

ease of access to the airport,

comfort and cleanliness of the terminal,

screening times at check-in, security and immigration counters,

baggage screening and delivery times.

While India's airports have done well with cleanliness - Delhi airport was ranked as the second cleanest in Asia after Beijing - they are faltering on the other metrics. For example, when it comes to connectivity and access, none of the Indian airports are connected to the city by metro rail except Delhi and Chennai. This forces the consumer to rely on road transport to reach the airport, which increases travel time and congestion.
The other problems of airports in India are management related. In recent weeks, we have seen a surge in delays in entering the airport, check-in, security and baggage collection. These are problems which are within the control of the management of an airport.The best airports in the SKYTRAX survey are in Europe (Zurich, Madrid, Paris), which often guarantee one-hour transit times. A passenger could reliably arrive at, say Zurich, on a flight from Mumbai, clear customs and immigration, change to the Schengen terminal and board a connecting flight to their final European destination, all within one hour. Their bags will reliably arrive at their final European destination.

In contrast, we have repeatedly seen passengers in India reach the front of the airport one hour before the flight, and fail to make it to their flight. We see airlines sending messages to passengers, requesting them to arrive at the airport a full two to three hours before the flight. The time overheads at the two airports, Mumbai and Delhi, now exceed the time spent flying from Mumbai to Delhi. All this overhead is the consequence of management decisions at airports.

Why are Indian airports succeeding with the hardware (building imposing structures), but struggling with the software (the human capabilities of management)? Economic thinking always suggests going upstream from the phenomenon at hand to the incentives that shape this behaviour.

What Are The Management's Incentives?

Airports are regulated monopolies. The largest Indian airports are privately owned. The determination of tariffs for aeronautical services (like landing/ parking fees, user development fee etc.) is done by the Airports Economic Regulatory Authority. They use a formula that takes into account the sum of

operations and maintenance expenditure,

depreciation and taxation and

a "fair rate of return" that is calculated on the basis of AERA guidelines.

Unlike an airline, factors like service quality and efficiency have no impact on the airport’s revenues.

In addition to the landing/parking fees, rents paid by shops and restaurants, etc., the airport collects the following three charges from the airline which in turn passes them on to the passenger:

common usage terminal equipment fee of Rs 50,

passenger service fee, e.g. Rs 53 for a domestic flight departing from Delhi in 2022,

UDF, e.g. Rs 91 for a domestic flight departing from Mumbai in 2021-22.

The PSF and UDF values vary by airport.

The incentives of the management are to earn the profits of a regulated monopoly, without regard for the customer experience. It is, then, not surprising that airports are comfortable imposing inconvenience upon passengers: this has no adverse impact on their profits. In order to improve matters, there is a need for greater checks and balances.

Data Can Help

It would help if airports release daily statistics about delays:

What is the "safety factor" employed by passengers when showing up at an airport? That is, how far before the flight do passengers show up? When the airport performance degrades, passengers will compensate by showing up earlier. Better airports are those where passengers show up closer to the flight. The release of this daily data will permit comparisons across time and across airports.

What fraction of passengers failed to make it to their flight? This will reflect a combination of difficulties in urban transportation and in the working of the airport.

What is the delay after a plane lands, until the last bag is placed on the conveyor belt?

At most Indian airports, the security officer at the entry gate scans the boarding pass which records the time of entry. This gives ready access to a wide variety of statistics.

The daily release of these facts by every airport in India, would create a new level of awareness about the performance of airports. The release of this data would help passengers plan their journeys, to find the balance between the risk of missing a flight vs. the wastage of going early. It would also help airports get an accurate sense of how they stand vis-a-vis the others in India, and the global best standard. There would be greater pushback when an airport malfunctions, which would be a better arrangement, when compared with the present airports which earn money off customers regardless of how badly they are treated.

Such information disclosure is prevalent in many other countries. For example, the Transport Security Administration and the Customs and Border Protection in the United States provide real-time information on wait times for security and immigration clearance at major U.S. airports.

It can be argued that the manager of an airport is not responsible for the government employees inside the airport who run the security process. Such passing-the-buck would go down poorly with paying customers. The citizenry views the manager of the airport as the one accountable for delivering a good airport experience. It is the job of the manager of the airport to engage with the government and achieve improvements in the work of the security crew.

Airports in India have acquired shiny hardware, but have yet to achieve the software of sound management. The most important characteristic of a well-run airport is that passengers do not waste time by showing up early. The first step towards this lies in information release.

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