Can Bengaluru International Airport overtake Mumbai and Delhi?

When Bengaluru’s Kempegowda International Airport opened in 2008, its ambition was modest—to become the gateway to southern India for air travellers. Bangalore International Airport Ltd (BIAL) has raised that bar a few notches: it is now aspiring to become a global transit hub.

Bold bets on infrastructure, entailing as much as Rs 20,000 crore capital expenditure, are part of a plan drawn up by BIAL to achieve the ambition, which Managing Director and Chief Executive Officer Hari Marar says will ensure the airport stays in step with Bengaluru’s own rapid growth.

“Aviation oils the engine of the economy,” Marar tells BT.

Investment in capacity expansion is essential because, without it, Bengaluru’s connectivity, especially important for IT and outsourcing industries, to which it is an important home, risks being impaired, he says.

Fairfax India Holdings Corp. (the parent company of majority private promoters) is playing a key role in the journey. Anchorage Infrastructure Investments Holdings Ltd owns 43.64% and FIH Mauritius Investments Ltd 30.36% of BIAL. Karnataka State Industrial & Infrastructure Development Corporation Ltd and Airports Authority of India hold 13% each.

The rapid pace of passenger traffic growth has fueled BIAL’s ambition to make the airport a hub for passengers from India and beyond to destinations further afield.

The airport closed the last financial year with 42 million passengers, and is expected to exceed 48 million this year, of which around 7 to 7.5 million will be international travellers—a 50% jump in overseas traffic in just “two to three years,” says Marar. By 2030, he expects the number to climb to 70–80 million passengers.

Terminal 2, hailed as a showpiece of green architecture and design, has the capacity to handle 10 million international travellers, expandable to 12 million. Phase 2 of its construction is under way, which will double capacity to 20 million in five to six years.

“It is about convergence. We’re not just seeing more airports being built; existing ones like Bengaluru and Mumbai are expanding. And airlines like IndiGo and Air India have placed massive aircraft orders,” says analyst Jitendra Bhargava. “Why should we doubt that aviation won’t grow?”

Financial Demands

To be sure, financial demands on BIAL to power such growth will be heavy. The next phase of expansion alone is expected to cost between Rs 16,000 crore and Rs 20,000 crore.

Marar insists that BIAL is well prepared. Equity requirements will be partly met through retained earnings amassed over the past few years. With an ‘AAA’ credit rating, strong cash flows, and longstanding creditor relationships, the company is confident of securing financing on favourable terms to cover the remainder.

BIAL is looking beyond terminals and runways. With its existing two-runway system, it can eventually handle more than 100 million passengers a year, albeit with some constraints. To help it overcome them, the company has expressed interest in participating in the development of Bengaluru’s proposed second airport, planned to be functional some time between 2031 and 2035.

“We maintain a strong relationship with the Karnataka government, which also owns a 13% stake in us,” says Marar. He insists that this will not overstretch BIAL because the airport’s expansion should be completed by 2029 or 2030, well before the new airport project gathers pace.

And Marar believes India’s regulatory regime has matured significantly. “They (Airports Economic Regulatory Authority) give (us) ample opportunity to be heard, which is more than one can ask for,” he says.

Managing costs, however, remains a constant balancing act. Capital expenditure, construction and interest payments form the largest expense components while employee costs and operations drive recurring expenses.

Even so, BIAL operates at enviable margins of 70–72% of Ebitda (earnings before interest, taxes, depreciation, and amortisation), a measure of operating profitability. In doing so, it is helped by its eagle-like focus on reducing cost per passenger as scale increases.

Revenue Streams

Equally crucial to the airport’s long-term vision is the diversification of its revenue streams. For instance, non-aeronautical revenue sources such as retail, food and beverages, entertainment, and real estate account for 35% of earnings. The goal is to raise this to 50%.

The list of projects include a 2 million sq. ft office complex, a 775-room hotel, concert arena, convention centre, logistics park, and multiple Maintenance, Repair and Overhaul (MRO) facilities through partnerships with Air India and IndiGo.

Connectivity to the airport, a sore point for Bengaluru residents, is being addressed. Construction of a metro link, Marar claims, is progressing at a “blinding pace” and it should be operational by the third quarter of next year, with tracks inside the airport nearly completed. A suburban rail link is also on the cards.

“Getting people to and from an airport efficiently is critical. The best way is through proper road links and metro connectivity from the city centre... Bengaluru remains under-connected,” says aviation analyst Ajay Awtaney.

To truly become a global transit hub, what the airport needs is a partnership with strong carrier, says Marar. The evolution of BIAL as a hub is only possible through airline-airport partnerships.

To Marar, the future of Indian aviation is brimming with possibilities, although he accepts that periodic turbulence is inevitable.

“Yes, turbulence is in the nature of aviation. But Indian aviation is poised for what I call the golden age,” he says.

The next five years, he says, will be “incredible.”

@tweettokarishma