The business model of airports

After knowing that Adani group took over the majority stake (74%) in Mumbai international airport, I was wondering how this business model of airport works...After a bit of research on google I got to know that :

It is hugely capital intensive business. CAPEX & operating costs are huge. If we see the 2 busiest airports of India: Mumbai & Delhi, It costs on an average of 200cr to 300cr per year to run Delhi airport and around 200cr for Mumbai airport. (Before covid-19)

So, the question is how they generate revenue to bear such huge costs?

1. Airlines So the Airline companies pays aeronautical charges to airport, for eg: fuel supply charges, Air traffic management, charges of navigation surveillance & communication for flights, landing& parking charges, cargo facility etc. Delhi airports generates around 64% of its revenue from these aeronautical services.

2. Service providers Imagine airport just like a big shopping mall every. Restaurant, retail outlet pays rent to mall. Similarly airport makes money from retail outlet's rent. The no of person using Delhi airport was around 6cr in F.Y 2018-19. Even the biggest mall in India will not have an average footfall 1 lakh /year (3.65cr/year). More the no of passengers higher the rent by service provider because more people more sales. So they earn rent from retail outlet, parking, paid taxi service inside airport, etc. Delhi airport's 36% of its revenue comes from this segment.

CONCLUSION Over 90% of all Indian airports runs at a loss, but a well managed airport can make decent profit like: airports of Kolkata, Lucknow, Patna, Mangalore etc. Running airport profitably is a big challenge across the world. And also this business if greatly affected by covid-19. That's why majority of airports are operated by government. But why to run a loss making business? because operation of airports is the key in development of nation. Private players must participate in development & operations of airports. Let's see how the Mumbai airport acquired by Adani group turns out to be.

Comment down your views ;) #businessmodels #finance #fundamentalanalysis #disinvestment