The Shriram Sanjeevi column: India travel retail set for growth as aviation industry expands

INDIA. In the latest of a series of articles about travel retail and aviation, our India Editor Shriram Sanjeevi assesses the exciting airport and airline expansion in the country, and the huge new opportunities it will open up for retail and food & beverage.

On 27 February, India’s Prime Minister Narendra Modi inaugurated the country’s newest greenfield airport at Shivamogga in Karnataka as part of his election campaign in the state. There are now six airports in Karnataka and another six are in the pipeline.

Built at a cost of Rs.450 crores (US$55 million), the new airport is located 180 kilometres east of Mangalore International Airport (managed by Adani Group) and 300 kilometres north-west of Kempegowda International Airport Bengalaru (managed by Fairfax Holdings).

According to sources, a private airport player has already come forward to manage the new facility and discussions are underway.

Several major airlines in India including Indigo are vastly increasing the size of their fleets to meet potential demand (Photo: Airbus)

From 74 airports in 2014 when Modi assumed power, the number of operational airports has doubled. Of course many of these existed already as mere airstrips (since World War II), but through the aspirational UDAN (Ude Desh ka Aam Nagarik  – ‘To make the common man fly’) scheme, many new airports in Tier 2/3 towns have been commissioned. The airfare per ticket for flights between UDAN  airports up to 300 kilometres is capped at Rs.2,659 (US$32), making it extremely affordable for a citizen to fly.

Shriram Sanjeevi predicts exciting developments for Indian travel retail in response to rapid aviation and airport expansion

“Even those wearing Hawaii chappals [flip-flop style footwear which cost about US$2 -Ed] can now fly,” said Modi addressing an audience on the affordability of air travel. He also mentioned Air India’s latest purchase of 470 aircraft – 250 from Airbus and 220 from Boeing – at an estimated cost of US$70 billion, stating how it would create numerous jobs in India.

He was right, including employment in the travel retail sector that will arise due to this order by Air India and other airlines who are on an aircraft buying spree. India’s number one airline by passenger traffic, Indigo, plans to order 500 new aircraft and Jet Airways, now with new owners, plans to order another 200.

Delivery of the aforementioned aircraft orders will happen over the next 7-10 years. Given that there are about 700 aircraft operating currently, I’d expect to see about 1,200 flying from Indian airports by 2028, with total aircraft increasing by about 100, or say +15%, per year.

Gearing up for this, there will be numerous new retail and F&B outlets established in the Indian airport network to cater to aspirational flyers, many of whom could be flying for the first time. Non-aeronautical revenues currently account for more than 65% of private airport operator turnover – such companies could potentially double up their incomes in the next 5-7 years.

For Airports Authority India (AAI) airports, the figures are flipped due to an historic lack of focus on expanding commercial opportunities.

In my previous column, I highlighted the success of F&B at Indian airports in comparison to retail. As some of the Tier-2 airports do not have terminating (last) and originating (first) flights, it is likely that many passengers arrive and depart  late due to factors such as weather conditions and runway congestion at major airports.

Therefore, the dwell time for passengers in smaller airports will be significantly higher than in bigger airports where the majority who are travelling on business know exactly their path within the airport and the time it takes to reach the boarding gates.

F&B outlets featuring strong theming and Sense of Place are set multiply across Indian airports

Hence, they do not spend much on retail and dining, save for one last drink for the runway, perhaps. The disposable incomes of those passing through smaller airports may not be very high, but it is compensated by the novelty around air travel, thereby increasing their propensity to spend.

On a recent trip departing from Patna Airport, I was at Starbucks and was astonished to note that the processing time from standing in a queue to place my order to collecting my selection took eight minutes. That’s almost three times as much as at a downtown café, perhaps due to peak hour crowds pre-boarding.

Despite the way, this, for a seasoned traveller and travel retail enthusiast like me for close to two decades, came as a welcome surprise. Why? Because it underlined that even smaller airports can provide a busy, vibrant and even premium F&B offer.

The top six airports at Mumbai, Delhi, Chennai, Bangalore, Hyderabad and Kolkata followed by the next 20 served about 75% of the estimated 330+ million passengers across India for financial year 2022-23. However, the remaining 125 airports manage over 82 million passengers. If I were to suggest a very nominal US$2 spend per passenger, that’s an estimated Rs.1,350 Crores (US$165 million) a year in incremental revenues, for the smaller airports who are carrying just 25% of the entire air traffic.

From travel retail revenues, bigger airports are estimated to rake in around Rs.4,200 Crores (US$520 million) currently and the smaller ones probably bring in about Rs.400 Crores (US$52 million) or less, annually. Together, I believe retail and F&B opportunities could range over Rs.8,200 Crores (US$1 billion) per year by 2025.

More aeroplanes in the skies (and thereby more passengers in the terminals) and a much higher volume of flights only mean bigger opportunities for brands, retailers and airports. These are indeed interesting and exciting times for the travel retail sector in India. ✈

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