Sorrows of the Ghost Airports

We need to reduce the congestion in major cities in order to let the airports in smaller cities function.

The term “ghost airport” is used to describe the airports which were build as a result of government provision but are unable to attract crowd due to the lack of both demand and supply. Since 2009, Rs. 326 crore ($ 50 million) has been spent on eight such ghost airports built all across the country. The reasons behind the construction of these airports broadly range from sharing the burden of increasing air traffic to gaining political mileage. However, the primary reason behind their failure has been the network effect.

Relevance of network effect in the aviation industry

The primary focus of the commercial aviation sector is to find economically viable ways to connect various locations. However, due to the high cost of production only the locations with high traffic are considered economically viable. The aviation sector in India therefore works in a hub and spoke model. The major cities are the hub or the centre of the wheel and the all the traffic is connected to the centre and passes around the spokes.

To add to it, the airlines and the passengers also rely on network effect. The well connected flights are preferred by the passengers for providing connectivity to larger number of destinations and help the airlines attract more customers. To reap the benefits of the network effect, the airlines connect smaller cities to the major hubs which are already connected to a large number of destinations. The connectivity of the major hubs exponentially increase the connectivity for smaller cities.

This concept has been theoretically explained by Christopher Mayer in his paper “Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil”. In his paper Mayer explains that one new round-trip flight from a major city which is already connected to n airports creates 2n additional connecting routes. For instance, if Jaisalmer was connected to Delhi which is connected to let’s say 100 more destinations, any connecting flight will be able to create 100 connecting routes from and to Jaisalmer, thereby, creating 200 connecting routes.

The increasing need for connectivity has led to a multifold rise in the routes connected to the hubs like Mumbai and Bangalore. The congestion in these cities has reached a level that it is now difficult for airlines to create connecting flights to smaller town like Jaisalmer. This lack of connectivity hampers both the supply of air transport and the demand for air travel in the smaller cities. Hence, the most effective way to increase traffic in the ghost airports would be by reducing congestion in the major hubs and encouraging connecting routes in-between.

Way Forward

There have been various papers written on measure to reduce congestion in the airports. One of the relevant research paper has been written by P.S.Senguttuvanm from AAI in 2006 titled, “Economics of the Airport Capacity System in the Growing Demand of Air Traffic – A Global View”. Although the paper largely explains the functioning and the constraints faced by airport, he also talks about measures to reduce congestion in the existing airports. As per the paper, applying better management tools, eliminating restrictions on capacity use, and redistribution of demand management during the peak hour would help solve the congestion in the short term. In the long term, he suggests developing new physical capacities like terminals, runways etc.

A much broader and long term solution is offered by Clifford Winston and Jia Yan in their paper “Competition Between Private Commercial Airports Could Reduce Passenger Delays”. Winston and Yan’s paper suggests opening up the airports to the private sector. As per the paper, opening up the airport would increase competition and price differentiation within the airport provisions. Privately owned commercial airports will have to compete for operations and therefore, will charge the aircrafts accordingly. On the other hand, the airlines will be able to bargain and negotiate with airports to determine charges. Both the services will be able to, thereby, create different price-service combinations for different users.

As per the paper, allowing complete private ownership will be beneficial in reducing the congestion faced by the major airports currently, increasing the connecting routes, and enabling the airports to be profitable without the use of taxpayer money.

To sum up, currently Rs. 2,700 crore ($413 million) has been pledged for four new airports in Bihar by the Prime Minister and a 200 airport growth plan is in line. In order to avoid creating any more ghost airports, it is important that the Civil Aviation Industry works out a thorough plan to reduce the congestion in the major cities.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher.