hyderabad international airport traffic study

Final Report

Hyderabad International Airport Traffic Study

January 2015

Submitted to:

Submitted by:

ICF Limited 6th Floor, Watling House, 33 Cannon St., London, EC4M 5SB, UK

Final Report: Hyderabad International Airport Traffic Study January 2015

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TABLE OF CONTENTS

1. Executive Summary ............................................................................................ 1

1.1 Introduction ............................................................................................................ 1

1.2 Market Conditions ................................................................................................. 1

1.3 Hyderabad Airport Performance ............................................................................ 1

1.4 Hyderabad SWOT Analysis ................................................................................... 3

1.5 Traffic Forecasts .................................................................................................... 3

2. Introduction .......................................................................................................... 5

2.1 Introduction ............................................................................................................ 5

2.2 Information Sources .............................................................................................. 5

2.3 Report Limitations ................................................................................................. 6

3. Indian Market Overview ...................................................................................... 7

3.1 Introduction ............................................................................................................ 7

3.2 Indian Economy ..................................................................................................... 7

3.3 Air Travel Market ................................................................................................... 9

4. GHIAL Market Review ....................................................................................... 13

4.1 Hyderabad ........................................................................................................... 13

4.2 Assessment of GHIAL’s Catchment Area ........................................................... 13

4.3 Impact of Aviation Policies .................................................................................. 17

4.4 Tourism Market ................................................................................................... 19

4.5 Latest Traffic ........................................................................................................ 22

4.6 Domestic Market ................................................................................................. 22

4.7 Key Domestic Carriers at Hyderabad .................................................................. 25

4.8 International Market ............................................................................................. 29

4.9 Key International Carriers at Hyderabad ............................................................. 31

4.10 Transfer Market Analysis ..................................................................................... 33

4.11 Seasonality Analysis ........................................................................................... 34

4.12 Air Transport Movements .................................................................................... 36

4.13 Average Aircraft Size ........................................................................................... 38

4.14 Cargo Tonnage Growth ....................................................................................... 39

4.15 SWOT Analysis of Hyderabad Airport ................................................................. 42


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5. GHIAL Traffic Forecasts ................................................................................... 43

5.1 Introduction .......................................................................................................... 43

5.2 Overview of Approach and Methodology ............................................................ 43

5.3 Passenger Forecasts .......................................................................................... 53

5.4 ATM Forecasts .................................................................................................... 55

5.5 Cargo Forecasts .................................................................................................. 56

5.6 Sensitivities ......................................................................................................... 58

Appendix A: Forecast Details ................................................................................ 61


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1. EXECUTIVE SUMMARY

1.1 Introduction

ICF (Formerly ICF SH&E) was engaged by GMR to prepare the following traffic study report,

which encompasses:

The analysis of the market in which Hyderabad airport (‘GHIAL’) operates

The airport’s performance to date

A set of independent traffic forecasts covering the period FYE March 2015 to 2038

This study was completed during January 2015 and presents ICF’s views at that time, based

on the best information available.

1.2 Market Conditions

The Indian aviation market has experienced rapid and transformational growth since its

liberalisation, which has led to domestic passenger volumes growing by 14.6% at Hyderabad

and international passenger volumes growing by 14.5% during the last decade.

However, the market has proved volatile at times with both FY2009 and FY2013 seeing

negative domestic growth largely driven by economy, 2008 saw the global financial crisis while

2013 witnessed strong rupee depreciation against the dollar which saw items such as fuel

increase dramatically. However, in the most recent year, India has seen a change in

government with the Bharatiya Janata Party winning the April 2014 general election, who

promise to take a more pro-active role in the economy and enabling growth, of which aviation

is a key component.

Nevertheless, although low in historical terms, the rate of real economic growth is still

projected to be strongly positive, averaging over 6.6% per annum over the next five years,

with similar rates into the 2020s. Given the close relationship between economic growth and

demand for aviation, this presents a solid basis for continued growth in the decades to come.

1.3 Hyderabad Airport Performance

In terms of both passenger and cargo growth, Hyderabad has enjoyed strong growth over the

last decade, in line with the wider Indian aviation market. However, during FY13, overall

passenger numbers decreased 2.6% due to a 6% decline in domestic traffic. Traffic returned

to growth in FY14 with +1.1% domestic traffic and +13.6% international traffic. As seen in

Exhibit 1-1, Hyderabad has witnessed strong growth with a five year average of +6.5% growth

per annum for Domestic and +8.6% for international traffic.


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Exhibit 1-1: Passenger Traffic

Source: GHIAL

Hyderabad caters to a range of domestic and international carriers, none of whom account for

more than 31% of total passenger volumes. Following the collapse of Kingfisher in 2012, the

carrier base is considered more stable, although the current economic climate is likely to place

continued financial pressure on a number of Indian carriers. Current year capacity plans

indicate further reductions in the domestic market.

One of GHIAL’s strategic aims has been to develop as a passenger hub for central and

southern India and recent trends in transfers flows indicate some success in this area.

Cargo volumes have continued to increase and have seen exponential growth since the

opening of the new airport in 2007 FY12 and FY13 saw small level growth due the fall in the

rupee and other economic factors but traffic has begun to gain momentum again in FY14

where Y/Y growth reached 7.4%, largely led by the domestic market’s 11% increase.

Exhibit 1-2: Cargo Volume

Source: GHIAL


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1.4 Hyderabad SWOT Analysis

To help create an overall vision of the market ICF has conducted a SWOT analysis which

outlines the main strengths, weaknesses, opportunities and threats to the Hyderabad market.

These factors strongly influenced the forecasting approach and assumptions.

1.5 Traffic Forecasts

ICF’s unconstrained base case forecasts for Hyderabad 40.6m total passengers by 2038, a

CAGR of 6.8% from 2014. Although considerably lower than the growth rates seen in the last

decade, this sustained growth still results in an airport that is comparable to Doha.


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Exhibit 1-3: Low, Base & High Case Passenger Forecasts

Source: ICF

Hyderabad is well placed to develop its cargo business and the forecasts reflect the significant

potential for growth, reaching 398,000 tonnes by 2038, from its current level of 90,000 tonnes.

This is equivalent to a CAGR 6.4%, which comprises 5.6% on domestic and 6.9% on

international volume growth.

It is expected that average aircraft sizes and load factors will continue to increase over time.

This results in a slightly lower growth rate in ATMs than in passengers, averaging 5.6% over

the 24 year forecast time horizon, reaching 319,000 annual movements by 2038. This would

rank the airport slightly below present day Kuala Lumpur.

Exhibit 1-3 illustrates the low, base and high case forecasts for passenger volumes at

Hyderabad. For the initial ten years, the range in total passenger volumes between the high

and low are +/- four million passengers, or 10%. By the end of the forecast period, the range

widens further, from approximately 34m to over 51m. It should be noted that these forecast

have been prepared on an unconstrained basis and thus reflect underlying demand but not

any future capacity constraints.


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2. INTRODUCTION

2.1 Introduction

ICF has been engaged by GMR to prepare the following traffic study report, which

encompasses the analysis of the market in which Hyderabad airport operates, the airport’s

performance to date, and a set of independent traffic forecasts covering the period FY2015 to

FY2038. This study was completed during January 2014 and presents ICF’s views at that

time, based on the information available at that time.

2.2 Information Sources

ICF’s work has been prepared using publicly available information, data provided by GMR and

from ICF’s in-house databases. No other stakeholders were interviewed and no site visits were

made on this occasion. However, the team has previous experience of Hyderabad airport,

having prepared forecasts in 2004, 2010 and 2013.

Key data sources include:

Indian Statistical Offices: ICF has collected and relied on various official statistics

from a number of Indian Ministries such as the DGCA and the Ministries of Statistics

and Tourism which publish figures on GDP, trade and transport amongst other data.

Official Airline Guide: ICF maintains a database of historical and current airline

schedules as reported by airlines to the Official Airline Guide (OAG). This data was

used to build a picture of scheduled services at the focus airport. However, OAG

schedules do not always provide a complete picture of traffic, as some small carriers

do not report their schedules and charter and general aviation are not covered at all.

As such, ICF has had to augment OAG data with other sources to ensure complete

coverage.

IMF World Economic Outlook: An independent source of economic forecasts and

commentary, which ICF routinely uses for traffic forecasting. The IMF’s six-monthly

forecasts cover all major world regions and countries but are typically for a 4-5 year

time horizon.

Economist Intelligence Unit: As a further source of independent economic forecasts,

ICF have purchased the latest available GDP forecasts for India from the Economist

Intelligence Unit (EIU), a reputable provider of long term economic projections. These

were produced in December 2014.

Airports Authority India: ICF has used publicly available data from the AAI to

compare Hyderabad’s performance to both peer Indian airports and at a country level

for both passenger and cargo benchmarks.

Airports Council International: Airports Council international (ACI) collects data on

all airports worldwide with meaningful volumes of passenger traffic. ACI was used as


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a source of benchmark information when comparing the projections of Hyderabad

traffic to other airports in operation today.

GHIAL: ICF has worked closely with the management of GHIAL primarily for data

collection purposes so that actual airport data can be used throughout the analysis.

Year-to-date figures have been provided, typically to December 2014.

ICF has relied on the accuracy of the data provided to us and have not sought independent

verification of it. Should any of the data provided by GHIAL or third parties prove to be

incomplete or inaccurate, ICF’s analysis and conclusions may change.

2.3 Report Limitations

This report sets out a market analysis in a manner consistent with industry practices for similar

work. ICF believes that the approaches and assumptions used in this analysis are reasonable;

however, certain assumptions regarding future trends and forecasts may not materialize, and

therefore could affect actual development and market demand.

For this study, ICF relied on publicly available data and information, including economic and

aviation statistics and forecasts, as well as data provided by GHIAL on actual traffic

performance. Although ICF believe these sources are reliable, opinions could vary materially

should some of the information provided prove to be inaccurate or incomplete.

This analysis was prepared for the exclusive use of GHIAL; however, it may also be shared

with GHIAL’s shareholders, as well as prospective investors subject to the limitations and

terms set out in ICF’s Engagement Letter and Release Letter; it may not be shared with other

parties without ICF’s written consent. The opinions expressed herein are not given as an

inducement or an endorsement for any financial transaction. ICF accepts no responsibility for

damages, if any, that may result from decisions made or actions taken by any party, including

third parties, based on this report. Any use that a third party makes of this report, its analysis,

or the opinions contained therein, is the sole responsibility of that party. This is in line with

ICF’s signed Engagement Letter.

The analysis and opinions presented in this report reflect ICF’s reasoned views and judgment

as of the date of this report based on the information available to us at the time this report was

prepared.


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3. INDIAN MARKET OVERVIEW

3.1 Introduction

The demand for aviation is considered a derived demand, closely linked to people’s impetus

and ability to travel. In other words people’s income and wider economic circumstances,

requirement to travel for business/tourism/visiting friends and relatives (VFR), and choice of

alternatives (either alternative modes of transport, or alternatives to travelling at all). ICF

therefore introduce this report with a brief overview of wider Indian market conditions which

have a direct impact on both domestic and international travel volumes, the performance of

airlines which add or remove capacity at each airport and thus in turn also influence the

historical and future growth of Hyderabad Airport.

3.2 Indian Economy

With an estimated population of 1.2 billion people and a PPP GDP of US$4.99 trillion in 20131,

India is one of the largest economies in the world. Since the early 1990s, economic

liberalisation, including reduced controls on foreign trade and investment, has served to

accelerate the country's growth with the past decade (2000-13) witnessing annualised

increases in FDI exceeding 24%2. Despite the rapid depreciation of the Indian Rupee in 2013

the Indian economy fared far better than expected with 4.7% growth in that year, as opposed

to the forecasted 3.3%3.

Exhibit 3-1: Historic and Forecast Indian GDP Growth

Source: EIU, December 2014

1 The World Bank, 2013 2 Ministry of Commerce & Industry, October 2014 3 Economist Intelligence Unit


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India's economy comprises a wide variety of activities, including small scale village farming,

modern agriculture, handicrafts, a wide range of modern industries, and a multitude of

services. Slightly more than half of the work force is in agriculture, but services are the major

source of economic growth, accounting for more than half of India's output, although less than

one-third of its labour force.

The country’s large and well-educated workforce, most of whom can speak English from

school age, has helped the economy to become a major exporter of software services and

business process outsourcing. Primary imports to India comprise crude oil, machinery and

chemicals, with the country’s main import partners being China, Saudi Arabia and the US.

Although affected by the global economic slowdown in 2008/09, with a resulting dip in the rate

of growth to around 4% in 2009, India avoided the worst of the global financial crisis largely

because of it being a low cost base and a relatively low dependence on exports for growth.

Since the global financial crisis of 2008 performance has been more mixed; the last two years

have seen considerably weaker growth as the rupee has depreciated strongly relative to the

dollar and as political uncertainty knocked investor confidence.

Nevertheless, although low in historical terms, the rate of real economic growth is still

projected to be positive, averaging over 6% per annum over the next ten years, and similar

rates into the 2020s. Given the close relationship between economic growth and demand for

aviation, this presents a solid basis for continued growth in the decades to come.


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3.3 Air Travel Market

As of 2015, India has 21 international airports and 61 domestic airports, as shown below.

Exhibit 3-2: Indian Airports

Source: AAI Note: Red Dots indicate International Airports, Blue Dots indicate Domestic.

In the last decade, the aviation market in India has expanded significantly, thanks to the

economic development of the country and the deregulation of the domestic market. Exhibit

3-3 highlights the development in air travel since 1980 at India’s four major airports (Delhi,

Mumbai, Chennai and Kolkata) which accounted for 54% of total traffic. Thanks to the

domestic open skies policy and the liberalisation of the international market to private carriers,

the traffic at the four metro airports (and across India) has increased dramatically.


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Exhibit 3-3: Evolution of Passenger traffic at India’s four major airports

Source: DGCA, AAI. Note: Data for Mumbai, Delhi, Chennai and Kolkata airports only. Historic Metro Airports

Between 2003 and 2008, domestic traffic increased by an average of 23% per year. Similarly,

international traffic has grown at an average rate of 12% over the same period. However,

following the 2008/09 financial crisis there was a significant dip in domestic travel in 2009,

which recovered quickly and by 2011 traffic surpassed pre-2008 records. Between 2010 and

2014 the domestic market achieved a CAGR of 8.2% while the international market achieved

slightly less growth at 7.9% CAGR.

As part of the government’s five year plan (2012-2017), it had proposed to privatise six airports

in 2014 to increase airport efficiency, as seen at Hyderabad and Delhi, and to benefit from the

sale of their assets. The precedent of success at Hyderabad, Delhi, Mumbai and Bangalore

indicates how much success and traffic growth can be generated by inviting private operators

into the airport sector. However, as of 2015, none of these had occurred and only four airports

remained destined to for privatisation.

Exhibit 3-4: Busiest Indian Airports

Airport International Domestic Total 2009 - 2014 CAGR

Delhi 12.7 24.2 36.9 10.0% Mumbai 10.3 21.9 32.2 6.6% Chennai 4.5 8.4 12.9 5.6%

Bangalore 2.6 10.2 12.9 8.0% Kolkata 1.8 8.3 10.1 7.6%

Hyderabad 2.4 6.3 8.7 7.0% Cochin 3.3 2.1 5.4 9.9%

Ahmedabad 1.0 3.6 4.6 10.1% Goa 0.7 3.3 4.0 12.5% Pune 0.1 3.5 3.6 15.2%

Total India 46.6 122.4 169.0 9.2%

Source: AAI


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Hyderabad is currently India’s sixth busiest airport with the past five years creating a CAGR

of 7% for overall traffic.

Exhibit 3-4 highlights how Hyderabad’s growth is exceeding some of its larger regional

competitors such as Chennai but is maintaining a strong growth trend similar to that of its

primary competition, Bangalore.

2012 saw the demise of Kingfisher, which prior to their October closure was the fourth largest

carrier at India. The removal of a key competitor and service provider saw a significant dip in

capacity which led to fare increases across the Indian market, which in turn resulted in a

decrease in domestic passenger numbers as seen in Exhibit 3-3. Ultimately, this void was

quickly backfilled by the likes of IndiGo and SpiceJet who took significant market share in this

period.

However, as a whole the Indian market is expected to grow at a substantially higher pace than

the world average with industry forecasts predicting India’s domestic market to outperform any

comparable market creating the 7th largest O&D market in the world by 20334.

Hyderabad has seen strong and consistent international growth with its carrier base constantly

evolving and expanding. This is set to continue as India relaxes international bilateral

agreements with countries such as UAE, allowing significantly increased capacity for

international carriers. The relaxation of bilateral agreements could pave the way for more

countries to enter the Indian market which would further increase the attractiveness of India.

The relaxation of bilateral agreements also coincides with India’s review and change on

foreign ownership rules enabling foreign owners to part-establish airlines within India. This will

generate increased competition in a market dominated by a handful of carriers which should

drive passenger traffic.

For the purpose of the forecast, ICF have categorised the key markets into several categories.

International markets have been broken into their main geographic regions while domestic

markets have been separated into Delhi & Mumbai, ‘Other Tier One’ (Bangalore, Chennai and

Kolkata) and ‘Other Domestic’.

As seen below, the domestic markets have maintained strong growth with ‘Other Domestic’

being the largest in terms of absolute traffic and growing at an annualised rate of 8% over the

past five years, however this is counted across many routes as opposed to ‘Tier One’ which

counts only three routes. These large cities have also experienced strong growth as regional

economies have boomed, such as Pharmaceutical in Hyderabad and Telecoms in Bangalore.

The Middle-east market continues to post strong growth results as it continues to expand from

its strong traffic base at Hyderabad. Other the last few years the Far East has also seen a shift

in extra capacity as both foreign and Indian carriers look to the East where the market has

been relatively underserved.

Despite the lack of direct services, the US market remains the second largest international

market with 21% international market share by passenger. The market is served by Air India

who perform a stop-over in Delhi on their way to Chicago O’Hare. The US market has a large

4 Airbus GMF 2014


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mix of VFR traffic and corporate traffic between the US Headquarters and their local

Hyderabad offices based predominately in the HITEC city.

Exhibit 3-5: Market capacity change

Source: OAG, ICF Note: Categories are ordered (Left-to-Right) in order of overall capacity size. For period: 2009-2014

Europe previously has strong ties with BA and Lufthansa both operating frequent services into

the city, however, Lufthansa left the market in 2011 leaving only BA. Africa remains a small

traffic section in terms of passenger volumes and Hyderabad has no direct links to the

continent. The lack of direct flying to Africa is predominately due to the competitive advantage

of Mumbai and Dubai as hub airports able to offer airlines a far better yielding service due to

transferring traffic.


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4. GHIAL MARKET REVIEW

4.1 Hyderabad

Hyderabad is the second smallest of the Tier One5 cities in India, with a city population just

under seven million and a metro area population of approximately eight million inhabitants. As

the capital of both Andhra Pradesh and Telangana, the city is not only the economic centre of

the region but is also home to many state government institutions.

The local economy is focused on IT, pharmaceuticals and business process outsourcing

(BPO) and aims to rival Bangalore as the IT centre of India. Many IT industry firms have

established their offices and facilities in the city since the 1990s, namely Microsoft, Google

and IBM.

These businesses generate considerable air travel demand, both domestically to other

commercial centres within India, and to and from international headquarters. In addition, the

local pharmaceutical companies produce considerable volumes of high-value air cargo. In FY

2013 pharmaceuticals accounted for 47% of Hyderabad’s exported cargo volume.

While regional income is towards the bottom of the Tier One cities, GDP growth has been

rapid and the city is forecast to be one of the fastest growing in India in coming years.

4.2 Assessment of GHIAL’s Catchment Area

Hyderabad’s catchment area boasts over 76 million people and 17 million households. As a

region, Andhra Pradesh is the third largest economy in India and Hyderabad is currently the

sixth fastest growing city in India. Recently, Hyderabad was ranked as the 2nd easiest city in

India6 in terms of doing business, above the likes of Bangalore, Chennai, Delhi and Mumbai.

The surrounding region is home to an array of Multi-National Corporations (MNCs) such as

Microsoft, Deloitte, IBM, JP Morgan and various others, who are predominately based in

Hyderabad’s HITEC City. This increasingly varied portfolio of businesses highlights the allure

and attraction of operating in Hyderabad other over Asian destinations. Hyderabad also hosts

the national military research and development centres for missiles and other ballistic testing.

While service industries create a large proportion of the GDP, the state also has a wealth of

natural resources ranging from deep water gas and marine foods to natural minerals.

As seen by Exhibit 4-1, Hyderabad’s central Asian location is one of the airport’s greatest

benefits with the majority of India covered within the two hour flight time and the majority of

Asia and Middle East covered within five hours.

5 Tier One cities include Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Kolkata and Ahmedabad 6 Economic Freedom Rankings for the States of India, 2012.


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Exhibit 4-1: Hyderabad’s Catchment Zone by Flight Time

Source: GHIAL

Surface Transport

Rail

Secunderabad station is the region’s main rail terminal with over 123 million passengers and

64 million tonnes of freight carried in 2012. For comparison, Hyderabad Airport carried 8.3

million passengers and 84,000 tonnes of freight in the same period. As a region, over 384

million passengers originate their journey from a rail station on the South Central line. As of

2015, the greater Hyderabad area was still undergoing rail developments with the addition of

a modern HITEC City terminal being proposed, as well as fresh proposals of a rail link from

Umdanagar to Hyderabad Airport as part of Hyderabad’s Multi-Modal Transport System Phase

II.

There is an express service from Hyderabad to Delhi. However, while the route is marketed

as ‘non-stop’ and ‘express’, there are four technical stops and the total travel time is over 26

hours.

Road

Due to Hyderabad’s concentration of trade and industry the road network is heavily congested

and under major extension works. The PVNR Expressway, a three-lane highway connecting

Two Hour Flight Time

Five Hour Flight Time


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Hyderabad airport to one of the city’s suburbs was built in 2009. Work to create exit and entry

ramps along the Expressway has completed and a total of five ramps have increased vehicular

accessibility of the Expressway. A sixth ramp had been planned, however it will not be built

due to the inability to acquire required land.

In order to aid the easing of road congestion the Nehru Outer Ring Road (ORR) is under

construction. Several segments have already been opened for public use, however ongoing

delays have meant the deadline has been pushed back. It is now expected all sections and

service roads of the ORR will be completed 2016. These works are now part of the city’s major

road network which consists of three national highways and several state highways, however,

while, as mentioned, work is being done to counter the congestion, none have had any

significant success on reducing it. Indeed, in 2014 the ORR catered for an estimated 3,000

per day whereas the Inner Ring Road (IRR), linking multiple areas of Hyderabad to the airport,

was heavily congested and used by over 10,000 per day.

As part of the city’s redevelopment it was announced in 2011 that a new bus terminal will be

developed with 200 bus bays and capacity to hold over 1000 buses; it is expected to be

completed in 2015.

Regional Airport Infrasturcture Comparison

To provide an insight into Hyderabad’s standing within the region a brief analysis into each of

the major airports has been undertaken. Additionally, as Bangalore is one of Hyderabad’s

largest competitors a brief analysis to gain perspective has been provided below.

Exhibit 4-2: Regional Airport Comparison

Airport Distance from Hyderabad

(miles) Runway Length

(feet)

Annual Passengers (Fiscal YE

2013)

Hyderabad 14 14,000/12,500 8,330,000

Bangalore 339 13,100 11,993,000

Visakhapatnam 318 6,000 / 10,500 1,038,000

Tirupati 260 7,500 287,000

Vijayawada 164 7,900 170,000

Rajahmundry 224 5,710 <90,000

Sri Sathya Sai 218 7,315 <10,000

Source: AAI, ICF

Bangalore

Located 340 miles south of Hyderabad, Bangalore is Hyderabad’s primary competitor for a

variety of industries and Bengaluru International Airport consistently ranks within the top four

busiest airports with 11.99 million passengers in 2013.

The airport is similar to Hyderabad with a 20:80 international: domestic split in passengers

compared to Hyderabad’s slightly more diverse split of 25:75. The airport is also a hub for

several smaller regional airports, as is Hyderabad; however Bangalore offers slightly more


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varied international services with greater capacity. Hyderabad is growing at a higher rate than

Bangalore and as a city is starting to outperform the relatively historic home of BPO in said

market. Bangalore is the hub of domestic LCC AirAsia India which commenced its service in

June 2014.

The capacity of Bangalore is far greater than Hyderabad at the present time. Bangalore

already houses a cargo village, a concept Hyderabad hopes to duplicate. The airport can

currently support 15 million passengers. Recently, the airport underwent runway and terminal

improvements and in September 2014 Bangalore airport was given environmental approval,

although final approval is still pending, for a large scale expansion project which will include a

second runway and new terminal building. This is in anticipation of passenger numbers

reaching 55 million per annum by 2030 and ensuring the airport is adequately able to cope

with projected demand.

Visakhapatnam

Situated North-East of Hyderabad beside the Andhra Pradesh coast, it is the second busiest

airport in Andhra Pradesh after Hyderabad. The airport is also benefiting from the region’s

growing commerce and tourism and traffic has increased significantly since 2007 when the

airport’s first phase of redevelopment finished. In 2009, an additional terminal was built to

increase the airport’s total capacity as a result of increased flight operation flexibility and

significant traffic growth during the redevelopment.

The airport operates as both a hub and also a feeder, predominately into Hyderabad. Air India

started a route to Dubai via Hyderabad early 2012, while a direct international route to

Singapore has also launched. The airport is awaiting further operational flexibility such as 24

hour operations for seven days a week.

Tirupati

Tirupati, located in the south-east of Andhra Pradesh currently operates as a feeder airport

into Hyderabad by SpiceJet, Air India and Jet Airways. In 2010 the Government of India

outlined its plans to increase the capability of Tirupati Airport to international flights, however

the upgrade has faced severe delays. In January 2015 work is yet to commence and significant

issues have occurred with land procurement which would be used for runway development.

Night landing facilities that were constructed to facilitate operations during upgrade work

remains unused.

Vijayawada

Vijayawada Airport, located to the east of Hyderabad close to the Andhra Pradesh coast line,

is another airport the AAI is currently developing and adding improved infrastructure.

As of 2013, the airport is primarily a feeder into Hyderabad airport and to a lesser extent

Bangalore.


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By Mid-2013, the airport was facing difficulties in securing previously allocated budgetary

funds as the AAI considered diverting funds to the Aurangabad Airport, located 216 miles to

the north-east of Mumbai. The difficulties arose due to the airport’s failure to secure additional

land for the extension programme.

However, in January 2015 preliminary work began to develop a new terminal for the airport as

land had been secured and permission was granted. The Andhra Pradesh Reorganisation

Act, 2014 may lead to significant changes to the airport. It is expected Vijayawada will

eventually upgrade its infrastructure and become an international airport as the surrounding

region forms part the new capital of the residual Andhra Pradesh.

Warrangal

Warrangal Airport, situated in the state of Telangana, was India’s largest pre-independence

airport which closed in 1981. Prior to closure it operated mainly cargo services for the region.

The airport was due to be reopened in the late 2000s after years of deterioration; however, as

of 2014 there had been no progress on this.

4.3 Impact of Aviation Policies

Currently, the Ministry of Civil Aviation formulates policies while the Directorate General of

Civil Aviation enforces the policies, however, this is set to change as India reorganises its

position on aviation policy with the transition to a US FAA Style aviation authority, creating a

more centralised organisation.

Domestic air transport policy

In 1953, the Government of India nationalised the airline industry. Indian Airlines Corporation

and Air-India International were established as the sole permitted scheduled carriers.

The legislation which protected the duopoly was repealed in 1994. Air transport in India was

opened to operation of scheduled services by any carrier which fulfilled the necessary

requirements.

A few years later, the Government realised that, although no scientific appraisal of the

performance of private operators had been carried out, it generally appeared that but for one

or two jet aircraft based operators and a couple of other regional airlines, no private operator

had been able to provide regular, stable and professionally run air transport service in the

country.

This prompted a review of the existing policy guidelines and suggests modifications which

could lead to orderly development of domestic air transport industry in a healthy competitive

environment. Accordingly, the Ministry of Civil Aviation prepared a framework of policy for

domestic air transport services.


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The main philosophy is that barriers to entry and exit from the domestic air transport sector

should be removed. There should only be a pre-entry scrutiny of applications to verify the

financial soundness, maintenance, security and safety aspects of operations and human

resources development proposed to be undertaken by the applicant.

The main features of the 2012 changes to foreign direct investment into domestic air transport

services are as follows:

Foreign equity up to 49 per cent; investment by non-resident Indians and/ or overseas

corporate bodies up to 100 per cent permitted in domestic air-transport services.

Management contract with a foreign airline is not permitted.

Foreign Financial Institutions allowed to hold equity in the domestic air transport sector

provided they do not have foreign airlines as their shareholders.

Foreign investors allowed to have representation (up to 33 per cent of total) on Board

of Directors of the domestic airline company.

Minimum fleet size for a scheduled operator rose from three aircraft to five in order to

eliminate non-serious entrepreneurs and to achieve economies of scale.

India’s Route Dispersal Guideline system requires airlines operating on Intra-Tier I

routes to provider a proportion of their capacity to less well served regions.

International air transport policy

India’s bilateral agreements have not changed significantly since 2006 with most major

countries having no difficulty in reaching agreement. In September 2008, the European

Commission signed a bilateral agreement on behalf of all EU member states with India

allowing increased operations between the two regions.

The most noteworthy development in recent years for India’s international market was the

India-Abu Dhabi agreement in September 2013, whereby carriers could increase their capacity

up to 50,000 seats per week, a four-fold increase. Jet Airways-Etihad have agreed to be the

first foreign investor of an Indian airline under the September 2012 foreign ownership policy,

the partnership is set to maximise on the increased capacity between the two countries.

A less popular policy in Indian aviation is the ‘5/20’ rule which requires at least five years of

domestic service and 20 aircraft before a carrier can be permitted to fly internationally. This

rule has been topic of debate in recent months with the current government in favour of

reviewing and potentially removing the rule. Some sources suggest it may be removed in the

short-term future as both GoAir, AirAsia and Vistara lobby against it. The removal of the 5/20

rule would lead to a likely surge in start-up Indian carriers who can exploit both the strong

domestic market and international demand. It would be expected that the latest carriers would

begin international operations significantly before the prerequisite five years that currently

stands.

India’s policy on aviation and taxes is less favourable to the industry than most and the

perception is that aviation is a revenue source for the government rather than a revenue


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generator for the economy. Under the current taxing methodology fuel is taxed with an 8.2%

excise duty whereas in the UK and most EU countries this rate is nil. This rate is levied at a

state level and national ministers are lobbying regional governments to reduce this rate to

around half its current rate. Indian based airlines have a fuel cost which equates on average

to 45% of total operating costs compared to an Industry average of 33%, the high cost

contribution and volatility of fuel prices are part of the unpredictability within the Indian market.

Fuel prices dropped significantly in 2014/15 to approximately $50/bbl., the lowest price seen

since late 2008. This has come a critical time for many Indian carriers who are set to begin

fuel hedging policies to maximise the cost savings. Nevertheless, despite the vast cost savings

on offer to the airlines, carriers will still have to pay significant VAT on-top of the fuel costs

which can range from 1% (Andhra Pradesh) upwards of 20% (Various States). Telangana,

which Hyderabad Airport is situated in, reduced VAT on Aviation Turbine Fuel to 4% from 16%

in summer 2014.

In March 2012, Indian government changed foreign ownership controls whereby foreign

owners can now account for up to 49% of total equity. While this indicates a more accessible

market for foreign investors, it also questions the current state of Indian carriers who are in

dire need of investment.

Another rule which has been revised under the new government is restrictions on A380s.

Previously, A380s were disallowed from flying into India due to concerns over capacity and

passenger safety. However, these have been revised and A380 flights begun at Delhi and

Mumbai in June 2014.

The government has proposed the privatisation of fifteen airports and their air traffic control

division under a public-private partnership scheme where the AAI will still remain a

shareholder of the airports but primarily for income purposes while the focus of operations will

switch to managing and growing smaller regional airports. The first phase of the PPP is the

selling of six airports including Ahmedabad, Chennai, Guwahati, Jaipur, Kolkata, and

Lucknow. The second phase of airport transactions will be with smaller regional airports and

potentially five new-build airports. As of February 2014, the process of selling the six airports

has been delayed numerous times and there is yet to be a confirmed sale.

4.4 Tourism Market

The pre-bifurcated state of Andhra Pradesh attracted over 207 million tourists in 2013, 99% of

whom were domestic. Andhra Pradesh became the most visited domestic destination in 2013

and this strong domestic dominance is predominately due to the following factors;

Andhra Pradesh is rich in historical monuments. It possesses many important holy

temples with architectural beauty, which attract large numbers of pilgrims and tourists

from inside and outside the country.

There is an on-going effort to develop tourism with Tourist Information Centres

established at Hyderabad Airport, Nagarjunasagar, Tirupati, Visakhapatnam,

Warangal, New Delhi and Goa.


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The main region’s primary tourist destination is Tirupati in the Chittoor district with over

51% of total domestic visitors visiting the region. The Tirumala Venkateswara Temple,

situated in nearby Tirumala, is the most visited site of worship in the world, with an

estimate of between 75,000-100,000 visitors per day. This can surge to over 400,000

during holy festivals.

As Hyderabad has developed its share of international companies it has built on this

success and developed into a centre for conventions facilitated by the Hyderabad

Convention Visitors Bureau, which aims to increase awareness about Hyderabad as a

business tourism destination.

Hyderabad now forms part of the new state of Telangana, however pre-bifurcation,

Hyderabad held over 10% of the domestic tourism market. For foreign visitors,

Hyderabad is the primary destination in Andhra Pradesh, with over 75% of visitors,

which again highlights its strong international presence compared to the other cities

within the region. The major international markets for Andhra Pradesh are the UK,

United States and Canada, which all house significant ex-pat communities.

As seen by Exhibit 4-3 there is still significant market dominance by rail over air

transport for domestic tourists which coincides with the majority of visitors coming from

the surrounding regions.

Exhibit 4-3: Mode of Intra-India Transportation by user

Source: Ministry of Tourism


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VFR Traffic

The Indian diaspora is estimated at around 22 million worldwide, mainly in the United States

and Malaysia, but also in Saudi Arabia, United Kingdom, UAE and nearby Sri Lanka. Such a

large diaspora creates a large amount of VFR traffic between India and the pairing nations

and as such has been considered in the passenger forecast.

Exhibit 4-4: Indian diaspora worldwide

Source: Ministry of Overseas Indian Affairs,

The Andhra Pradesh community outside India accounts for a large share of the total Indian

diaspora. In the US alone, the community can be estimated 350,000 to 450,000 individuals.

They are located mainly in New York City, Chicago, and California. According to the Chief

Minister of Andhra Pradesh, 50% of the software engineers in the Silicon Valley are Indians

and 30% are from A.P and Telangana. Other ethnic concentrations from the Hyderabad area

are in South Africa, West Indies, Fiji Islands and Botswana.


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4.5 Latest Traffic

Over the last 10 years, the total passenger traffic at Hyderabad has grown at over 14% per

annum. In comparison, Mumbai, Chennai and Bangalore have respectively experienced an

average growth of 9%, 12% and 15% per annum over the same period.

For FY14, the domestic market represented 73% of the total traffic whereas it was accounting

for 78% in FY12. This is primarily due to the higher growth rate in the international market as

additional routes are added to Hyderabad’s network with greater capacity than domestically.

December-14 was a record breaking month for GHIAL with just under one million passengers

handled.

Exhibit 4-5: Passengers at Hyderabad Airport

Source: GHIAL

4.6 Domestic Market

After 2003, the liberalisation of the market has brought an unprecedented increase in traffic,

with a CAGR of 35.3% for the period 2004-2009. However, the economic downturn in 2008-

09 severely impacted domestic routes, with Y/Y decrease of 16.1% in 2009; however, traffic

has recovered extremely well with 2011 traffic surpassing the 2008 record. In FY13 there was

a slight 2.6% decrease in traffic which can be attributed to economic concerns and the collapse

of Kingfisher Airlines, which caused a surge in fare prices due to lower capacity. As of FY14

total passenger traffic for Hyderabad was 8.8 million which consists of 6.3 million domestic, a

1% rise from FY13.

The domestic market at Hyderabad is highly concentrated on four main routes. As shown in

Exhibit 4-6, Delhi and Mumbai account for 38% of the domestic traffic, this however is declining

as other Tier 1 routes become more significant.


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Exhibit 4-6: Hyderabad Domestic Traffic

Source: GHIAL

During the last three years, domestic market operations have seen a sharp decline in the

number of airlines at Hyderabad due to mergers and acquisition such as Air India’s merger

with Indian Airlines and the consolidation of their subsidiaries operations. This is illustrated on

the following chart, which shows the capacity share of domestic airlines at Hyderabad.

Exhibit 4-7: Domestic Market Share, FY14

Source: OAG Note: Market Share for period April 2013 – March 2014

IndiGo have rapidly expanded their operations over the past five years with large fleet orders

every few years to ensure long-term growth is maintained to a high level. SpiceJet has also

followed this strategy but at a far lesser level. While Air India and Jet have both procured other

airlines to expand their fleet. However, JetKonnect, one such buy-out, failed to generate

enough traffic at a low enough cost for Jet to maintain its operations and as a result ceased

operations in December-14.


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Exhibit 4-8: Domestic Carrier Share, FY14


This consolidation is also reflected in the number of operators on specific routes, as shown in

the following table. Although seat capacity has increased almost universally on each domestic

route, the number of operators has typically decreased, particularly on the thickest routes.

Exhibit 4-9: Hyderabad Domestic Route Comparison

Route 2009 2013

Frequency Operators Frequency Operators Mumbai 120 7 114 4

Delhi 112 7 112 4 Bangalore 110 7 107 4 Chennai 101 7 82 4 Kolkata 31 4 35 3 Poona 20 3 34 4 Tirupati 26 3 28 3 Vizag. 41 4 28 3

Ahmedabad 18 4 23 3 Cochin 21 3 21 2

Rajahmundry 14 2 21 2 Vijayawada 7 1 21 2 Coimbatore 14 1 14 2

Raipur 13 2 14 2 Bhubaneswar 7 1 14 2

Jaipur 14 2 8 2 Madurai 0 0 7 1

Goa 14 2 7 1 Indore 0 0 4 1 Bhopal 0 0 3 1 Calicut 0 0 1 1

Source: OAG Note: Sample week of October 2009 and October 2013. Direct flights only.


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As seen in Exhibit 4-9, Mumbai is still the best served market despite losing three carriers and

6 weekly flights. Meanwhile, Delhi has lost the same carriers but frequency has remained

constant with other carriers increasing their capacity. Otherwise the top four routes remain

relatively unchanged with a 55% market share of all domestic routes. Vishakhapatnam has

seen a significant dip in direct flights with the vast majority of carriers opting to use the airport

as part of a multi-stop itinerary, where it has in fact increased capacity. Poona has also seen

increases in both the number of operators and the frequency of the direct flights.

4.7 Key Domestic Carriers

IndiGo

IndiGo is the one of the fastest growing airlines in the world and is the

fastest growing in India with a passenger CAGR of 33% from 2009 –

2014. IndiGo operates an LCC model with a strong domestic network

and with an emerging international presence in the Middle-East and

South-East Asia. IndiGo operates a majority of leased A320-200s with 88 currently in use

while approximately 250 are on order. IndiGo received its first A320-200NEO in January 2013,

which was part of a much larger 150 aircraft order. Recently the airline has confirmed that it

will induct 20 A321neos into its fleet.

Hyderabad is IndiGo’s fifth largest hub based on seats and their Hyderabad-Bangalore route

is the fourth busiest route with 84 weekly flights. Hyderabad-Mumbai is the tenth busiest with

70 weekly flights.

Since 2009, IndiGo has increased its seat capacity market share of Hyderabad from 16% of

total Domestic traffic to 34% in 2014, IndiGo frequently holds average load factors in the high

80%s with peak months reaching an average of 93%.

IndiGo broke even in 2009 after three years of operations and by 2013 had recorded a US$

144 million profit in an otherwise typically unprofitable year for Indian carriers.

SpiceJet

SpiceJet is an Indian LCC, based at Delhi Airport. Starting operations

in 2005, SpiceJet quickly became one of the largest domestic carriers

in India and in 2014 operated ten international routes; primarily the

Middle-East and South-Asia. While SpiceJet has not grown as fast as

IndiGo it has still maintained an impressive CAGR for 2009-2013 of 24%. The airline’s busiest

routes are mainly those departing from Delhi to India’s main cities, such as Mumbai or

Hyderabad.

SpiceJet operates a mixed fleet of 16 B737-800, 2 B737-900ER and 15 Dash-8s with 43. As

of September 2013 SpiceJet is actively increasing its route network with focus more on the

international market, particularly, the Middle-East and South-East Asia, than the domestic.


Page 26

This could be due to the decline in the rupee value which could see a continued softening in

domestic travel, while the international market is expected to be more resistant to this effect.

Current economic conditions will naturally affect SpiceJet’s financial position as they try to

return to profitability after recording two years of losses (US$ 111 million FY2012, and a much-

reduced level of just over US $3.5 million for FY2013). Towards the end of 2014 SpiceJet

encountered further financial difficultly as approximately 1,800 flights were cancelled – the

vast majority being domestic – and its fleet experienced intermittent grounding due to payment

issues. In 2015 ownership of the airline was given to its original founder in a bid to adequately

restructure resume a profitable service.

Air India

Air India is India’s national carrier, which in 2007 was subject to a

merger with Indian Airlines and its subsidiaries. Previously, Air India

operated predominately on the domestic market while Indian Airlines

catered for the international market. Air India now comprises of Air

India as the parent airline with LCC subsidiary Air India Express and domestic subsidiary Air

India Regional. Both subsidiaries are currently facing financial difficulties and have failed to

make a profit since before 2009, while Air India is reportedly $4 billion in debt. While the

domestic market has proved more sustainable for Air India, the international market is

suffering major losses. Despite Air India’s current financial position it was granted membership

into Star Alliance during July 2014. This is likely to benefit Air India, and Delhi’s, transfer flows

as Star Alliance members will look to utilise Air India’s domestic connections.

Air India operates a mixed fleet of 99 aircraft in service7 with a variety Airbus A320 series

aircraft, 5 B747-400, a mixture of B777-200LRs and -300ERs. Air India has 18 Boeing 787-8

Dreamliners on service with a further 9 on order. Until 2012 Air India had yet to place an order

for new aircraft in over a decade due to financial difficulties and public criticism, however, in

August 2013 Air India’s inaugural Boeing 787-8 flight landed in Melbourne, offering the first

direct route to Australia in over 20 years. Air India is also looking to strengthen its domestic

network with more routes and increased frequency from its major hubs. In July 2014 Air India

joined Star Alliance becoming the first Indian airline to join an international alliance.

The main bulk of Air India’s route network is domestic with 62 of its 94 destinations being

within India. Following a similar trend to SpiceJet and IndiGo, Air India’s bulk of overseas traffic

is to the Middle East and Asia-Pacific with five flights to Europe and three to the United States.

Air India’s total traffic has been fairly volatile with a 1.5 million increase 2009-2010 followed

by a 0.8 million decrease the following year and a 1.2 million passenger increase for the 2012

period. Growth of 12% is seen from 2012-2013. Domestic passengers have fared better with

continuous yearly growth since 2009. Air India held a 19% share of seats at Hyderabad in

2014 and has experienced significant growth over period of 36% CAGR.

7 CAPA


Page 27

Following the Indian Airlines merger, Air India subsequently moved its bulk of operations from

its Mumbai base to the Indian Airlines hub of Delhi, where Air India has typically over 1200

weekly movements. However, this number has been grossly increased by the merger and is

still in the process of being reduced to more profitable levels. This bodes well for Hyderabad

which is the second busiest domestic route from Delhi and fifth busiest route for Air India being

the Mumbai service.

Jet Airways

Jet Airways is India’s second largest carrier in terms of passengers,

based in Mumbai with major hubs in Delhi and Chennai, it uses

Hyderabad primarily as a feeder route into these hubs. Route-wise,

Hyderabad is not seen as a significant source of traffic for Jet Airways,

with the busiest Hyderabad route failing to be within the top ten routes by seat capacity. Jet

Airways’ share of seats at Hyderabad has experienced a minor decline of -2% from 2009-2014

and in 2014 Jet held a total of 10% of Hyderabad’s seats.

Although being India’s second largest carrier, it is the fourth largest carrier at Hyderabad with

only 10% of the market share in 2014. This being because the airline uses other airports as

Hubs and uses Hyderabad as a feeder route into their network which is mainly based at

Mumbai, Delhi, Bangalore and Chennai. Jet Airways follows a similar route network to Air India

with 79% of operations being Domestic with the remaining flights mainly going to the Middle-

East and Asia-Pacific with two European and two North American routes.

Jet Airways operates 107 aircraft from a mixed fleet of Airbus, Boeing and ATR, with 15 aircraft

on order consisting of 10 B787-9 and 5 A330s.

Due to a rapidly rising cost base, Jet Airways has failed to turn a profit since 2011. While

passenger revenues have risen at a CAGR of 4.6% since 2011, costs have risen at a rate of

22% which led to Jet Airways recording losses in excess of US$ 245 Million in 2012 and US$

89.3 Million in 2013.

Jet Airways made Etihad an equity partner with a 24% share in 2013. The agreement follows

the announcement by the DGCA that capacity between India and UAE will increase four-fold,

with expectations being that Delhi will take up the most of the increase in slots as Mumbai

deals with capacity issues.

Air Asia

Air Asia is a LCC airline with its main hub at Kuala Lumpur International Airport.

Since commencing operations in 1996 it has become one of the largest LCC

carriers with a significant presence in East and South East Asia, in addition to

a notable domestic network in Malaysia. The airline will recommence flights to

Hyderabad after a three-year hiatus from its hub at Kuala Lumpur International Airport. The

service will also be connected to domestic cities in Malaysia.


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Emerging Domestic Airlines

Changes in India’s aviation policy in recent years have led to several proposed airlines with

very few seeing operational status, however, 2013’s regulatory changes saw the

encouragement of foreign investment and ownership in India. Following the aforementioned

changes, Vistara is one of the new entrants in the Indian aviation market.

Vistara is a full-service carrier which commenced operations on 9th January

2015 under a joint venture between Singapore Airlines Group and Tata

Sons, who own a 49% and 51% stake respectively. Vistara has become

the third Indian full service carrier and will be in direct competition on its

routes with Air India and Jet Airways.

Vistara has its hub in Delhi, with the route network on the outset consisting of flights to Mumbai

and Ahmedabad. Within the first year the route network is expected to expand to other

domestic cities including Goa, Bengaluru, Hyderabad, Srinagar, Chandigarh, Jammu and

Patna. Vistara plan to operate on a total of 87 domestic flights per week in its first year of

operation and prospects for international expansion in future years.

Vistara currently have three A320 aircraft in service with a further aircraft deliveries over the

coming years. A further 17 aircraft are on order expanding the fleet to 20 aircraft by the fifth

year of operation. This includes seven A320neo aircraft which are expected to be delivered in

2017/18.


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4.8 International Market

Throughout the last decade international traffic at Hyderabad has been growing consistently

at a 13.1% CAGR, as shown in Exhibit 4-10. International demand has proved resilient to the

recent economic downturn with passenger numbers still growing at 9% over the previous year.

Exhibit 4-10: International Traffic

Source: GHIAL

Dubai has been the dominant international route from Hyderabad since pre-2009. Exhibit 4-11

shows that 38% of international flights were to Dubai. British Airways announced in July 2013

that the London Heathrow – Hyderabad route will become a daily service in October 2013, an

increase from the four-weekly service which it held before. Muscat has enjoyed strong growth

with two operators now flying over double daily.

Exhibit 4-11: Hyderabad International Route Comparison

Route 2009 2013

Frequency Operators Frequency Operators Dubai 38 4 39 4Muscat 7 1 17 2Singapore Changi 5 1 15 2Kuala Lumpur 4 1 7 1Doha 7 1 7 1Abu Dhabi 0 0 7 1London Heathrow 5 1 7 1Jeddah 3 2 5 2Bangkok 4 1 4 1Hong Kong 0 0 4 1Riyadh 3 1 2 1Damman 2 1 1 1

Source: OAG Note: Sample week of October 2009 and October 2013 used for comparison purposes. Direct flights only.

Three main international regions are served from the airport: the Middle East, East Asia and

the UK. The Middle East accounted for 70% of international capacity in 2012, an increase from


Page 30

50% in 2012. The Asian market supplies 24% of the total seat capacity at Hyderabad with

Singapore being the third best served route from Hyderabad. Kuala Lumpur was previously

the fourth most served route but significant growth to the Middle-East has seen its importance

diminish as airlines seek to feed the low-cost labour market into the Gulf. The only direct

service outside of these regions is currently London-Heathrow which is operated by BA,

allowing passengers to transfer at its hub to onward points across Europe and the Atlantic.

Note that while North America is the second largest O&D market, there are no direct routes

from Hyderabad, largely due to the level of connections available from hubs such as Mumbai,

Delhi and Dubai.

Exhibit 4-12: International Market Share, FY14


Emirates are currently the largest carrier, accounting for 26% of the total international capacity

at the airport. In 2013, the carrier had over twice the amount of capacity as Air India, the

second largest airline in terms of international traffic at Hyderabad. Since 2009, Emirates, Air

India, Oman Aviation and Thai Airways have all increased their capacity while European

carriers such as British Airways and Lufthansa have decreased their own. Additionally, IndiGo

launched international services in 2011 to routes such as Dubai, Singapore and Bangkok as

part of its strategic vision to expand.


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Exhibit 4-13: International Carrier Share, FY14


4.9 Key International Carriers

As the domestic carrier analysis covered Air India, Jet Airways and IndiGo, only foreign

international carriers are discussed below.

Emirates

Emirates are the dominant international carrier into Hyderabad with a

constant market share of around 25% passenger-wise. Overall, Emirates

have seen positive growth across most of its network with a CAGR of

12% since 2010 with the rate of growth increasing significantly on a yearly

basis.

Emirates operate direct routes from Hyderabad to their main Dubai Hub with a fleet consisting

of B777s, A330s and A340s. Emirates have over 200 aircraft on order to replace some of its

existing fleet and expand capacity. Orders include 115 B777-9X with delivery expected in 2020

and over 50 A380s.

Backed by the Dubai Sovereign fund, Emirates is one of the top financially performing airlines

with over US $ 16.7 billion revenue generating US $ 409 million net profit in 2013. However,

while Emirates have yet to record a loss in over 15 years, 2013 saw a 34% drop in net profits

which Emirates accredit to rising fuel prices and a slowing European economy.8

8 Emirate Group Financial information 2013-2014


Page 32

Oman

Oman Air is the state-owned national carrier of Oman. Oman has

focused on increasing its long-haul, international route network and

currently operates a twice-daily service from its base at Muscat to

Hyderabad operating B737s. Oman has a fleet of 34 aircraft with 13

aircraft on order with deliveries set to commence in 2015.

India is Oman’s top international destination in terms of seat capacity with approximately 25%

of all seats, with Hyderabad the best served of all Indian cities.

Oman’s financial position is weak after not recording a profit since 2007 and the airline has

undergone restructuring and has been bailed out by the Omani Government to no avail as

2013 losses increased by 16% to USD294 Million.

Etihad

Etihad Airways is based at Abu Dhabi International Airport and was

established by the Emirate of Abu Dhabi. It holds a stake in Jet

Airways, India’s second largest airlines by market share. Etihad

operates a daily service to Hyderabad from its base using A330-2

aircraft. Etihad’s fleet currently includes 106 aircraft with 211 on order

highlighting its fleet replacement and route network expansion strategy.

India is Etihad’s top international destination with over 11% of total seat capacity.

Etihad has achieved strong profit growth from 2011 to 2013 growing from USD 14m to USD

62m.


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4.10 Transfer Market Analysis

In line with Hyderabad’s stated objective of becoming a regional hub for passengers in central

and southern India, the transfer market has seen substantial growth in recent years with CAGR

of almost 300% from 2009 to 2014. This growth equated to almost 1m transfer passengers in

2013. However, this number declined in 2014 with domestic transfers down 10% Y/Y.

Domestic to International transfers continued to rise, up 20% Y/Y, but remain a small part of

Hyderabad’s traffic mix, representing 1% of total passengers.

Exhibit 4-14: Hyderabad Transfers

Source: IATA, ICF

As can be seen in Exhibit 4-14, the bulk of transfers are domestic passengers flying onwards

in India, largely passengers from regional airports connecting onwards to major airports. The

domestic-to-International segment follows the similar profile with Hyderabad used

predominately as an access point from smaller regional airports to the Middle-east and Asia.

There is not material amount of International-to-international transfers as Hyderabad lacks the

international route network to warrant such service.


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4.11 Seasonality Analysis

The analysis of the monthly breakdown of both the international and the domestic segments

provides a view of the seasonality at the airport. As seen by Exhibit 4-15 and Exhibit 4-16,

passenger traffic at Hyderabad is not subject to a high degree of seasonality with September

typically seeing a seasonal dip, which is a trend seen throughout India, mainly in the domestic

market. However, strong growth in August-14 followed by an impressive September appears

to have disregarded this trend. FY15 has maintained traffic levels above recent years with

strong growth in the summer and month of December.

Exhibit 4-15: Domestic Seasonality

Source: GHIAL

From this monthly breakdown it is possible to see the impact of the domestic market upon

total traffic performance, as seen by August’s and December’s strong growth in the domestic

market.

Exhibit 4-16: International Seasonality

Source: GHIAL


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International traffic follows the trend of continuous growth and shows a relatively flat profile.

Although there is a slight peak during the winter months, which is mainly attributed to VFR

traffic from the sizeable Indian expatriate community and the peak in tourist traffic.


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4.12 Air Transport Movements

Over the last five years, total ATMs at Hyderabad have grown at 1.3% per annum. In

comparison, Mumbai, Chennai and Bangalore have respectively experienced an average

growth of 2.1%, 0.5% and 0.8% per annum over the same period, reflecting the difficult

operating environment seen across India.

Exhibit 4-17: ATM Volumes

Source: GHIAL

Despite strong growth over the past decade, Hyderabad has seen ATM numbers fall flat for

most of the past five years with strong growth in FY12 followed by two consecutive years of

decline. The FY13 dip can largely be accredited to the Kingfisher collapse which saw one of

the airport’s largest operators cease to operate. The FY14 dip is likely to be driven by the fall

in rupee and increased fuel costs which would drive airlines to tighten costs and reduce poor

performing routes.

Domestic ATMs have faced less growth that would expected for an emerging airport over the

past five years, however this appears to be a difficulty seen across Indian airports.


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Exhibit 4-18: Domestic ATMs

Source: GHIAL

International movements have continuously grown since 2007 with a five year CAGR of 6%.

Strong middle-eastern demand has largely buoyed the international traffic with all Indian

carriers able to fly internationally flying into the region while a diverse mix of gulf carriers also

operate between the regions.

Exhibit 4-19: International ATMs

Source: GHIAL

Cargo- ATMs have been volatile in recent years, although there was an overall increase

between 2009 and 2012 International cargo movements, however, grew consistently and are

expected to become the major component of freight ATMs in the very near future. 2010-2011

saw a dramatic increase in cargo activity as Blue Dart increased frequencies to 20 ATMs per

week from 10, which coincided with Deccan 360’s brief time in operation at Hyderabad prior

to their closure.


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4.13 Average Aircraft Size

Exhibit 4-20 shows the changes in average aircraft size for both domestic and international

operations. An increase in international slot capacity saw Malaysian, Qatar and SilkAir start

operations into Hyderabad which drove average aircraft sizes up slightly in the international

market. This was subsequently followed by the arrival of Sri Lankan airlines that operated

A320s which lowered the average. In recent years there has been a more constant average

as the increase in long-haul legacy carriers such as BA and Cathay Pacific, balance out the

growing LCC activity to the Middle East and Far-East markets.

The domestic market has increased over time as a result of increased narrow and widebody

aircraft operating domestically as regional aircraft are phased out of service.

Exhibit 4-20: Average Aircraft Size

Source: OAG

The last five years have seen a real increase in Pax/ATMs as passenger growth continues

despite reductions in ATMs. This signifies airlines seeking to improve load factors and stricter

cost controls, while demand continues to prove resilient to changes in supply.


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Exhibit 4-21: Passengers per ATM

Source: GHIAL

4.14 Cargo Tonnage Growth

Following liberalisation in 2003, Hyderabad experienced a surge of cargo tonnage. In addition

to this, Hyderabad’s proximity to several manufacturers providing goods abroad explains the

vast increase in international exports, which overtook domestic exports in 2008. The most

recent FY has seen growth return to trend after two years of relatively flat growth.

Exhibit 4-22: Cargo Volumes

Source: GHIAL

Since 2009, Emirates have dramatically increased their capability at Hyderabad and as

passenger capacity has risen so has belly hold freight. In terms of dedicated freighters

Hyderabad has predominately been a duopoly with Lufthansa controlling the international

traffic while Blue Dart uses Hyderabad as a part of its domestic network before connecting to

one its parent group DHL’s main hubs. As an express operator, Blue Dart carries a high


Page 40

proportion of document cargo, which also accounts for a large share of domestic belly cargo

volumes. With a postal service that is perceived to be slow and unreliable, many Indian

businesses rely on courier services to deliver their mail across the country.

The dip in 2012-12 domestic tonnage can be partially accredited to the collapse of Kingfisher.

However, cargo operations have benefited greatly by the additional of Hyderabad to Cathay

Pacific’s international network with a weekly dedicated freighter service operating the first

scheduled connection to East Asia from Hyderabad. Additionally, both Qatar and Turkish have

launched dedicated cargo operations in FY15

Hyderabad’s cargo facilities have also received numerous awards and positive recognition

from several industry bodies. ICF understand that Hyderabad is in advanced stages of

negotiation with an integrator which could potentially double tonnage volume, however, formal

agreement has been on hold due to economic conditions and the logistics. The potential step

change from this is not included in the base case cargo forecasts.

In 2013, the Indian government approved a free trade zone (FTZ) at the airport which by

September 2013 signed a MRO and a pharmaceutical firm to add to the region’s portfolio.

Regional Interviews suggest more firms are close to agreeing terms at the FTZ. The airport

also benefits from the addition of a cargo village which encompasses a number of warehouses

and has plans to extend to bonded warehouses, perishables and an international courier

terminal.

As shown below, exports are dominated by pharmaceutical products, which include both raw

materials that are shipped in barrel-like containers, as well as finished products including

vaccines, which need to be kept in temperature controlled conditions.

Some forecasts9 are predicting the Indian pharmaceutical market to grow from US$11 billion

to US$74 billion by 2020, highlighting strong potential growth for Hyderabad’s cargo

operations. This is partially credited to approximately 60 major pharmaceutical patents

expiring in the 2012-2016 period which will further boost the production of generic drugs from

Hyderabad’s industry.

9 Global Pharma looks to India: Prospects for growth, PriceWaterhouseCoopers, 2010


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Exhibit 4-23: Composition of Exports

Source: GHIAL

Recent years have seen an increase in the amount of cargo transported by dedicated freighter.

The mix of Freighter/Belly-Hold has evolved from 25:75 to 32:68 with a freighter cargo seeing

significant demand due to the increase in local industry.

Blue Dart

Blue Dart Aviation is currently the primary cargo user for Hyderabad Airport based upon ATMs.

Blue Dart operates as an express cargo carrier with the bulk of cargo being documents and

mail which travel between the major domestic hubs. Hyderabad is primarily a feeder route into

Blue Dart’s Chennai hub with 87% of Blue Dart’s total tonnage being export.

Blue Dart operates five leased B757-200 Freighters and currently have no aircraft on order.

Financially, Blue Dart is performing extremely well with net profit up 100% since 2010.

As Blue Dart is 75% owned by DHL there is no expected expansion plans into the international

market, however, as Hyderabad’s cargo demand increases it could become more of a focus

for Blue Dart to increase their capacity in line with demand.

Blue Dart recorded their highest ever profit after tax in 2013 of US $ 3.4 Million, up 54% on

the year.


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4.15 SWOT Analysis of Hyderabad Airport

After consideration of the trends discussed in this section, ICF considers the following to be

the key strengths, weaknesses and risks of the Hyderabad market which are likely to be most

influential on future traffic volumes. Some of these factors are incorporated in the forecasts in

a quantitative manner, while others are reflected in the judgments that underpin various growth

drivers.

Exhibit 4-24: SWOT Diagram

Source: ICF

Building on the extensive market analysis undertaken, the following section presents ICF’s

approach to the traffic forecasts for Hyderabad airport.


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5. GHIAL TRAFFIC FORECASTS

5.1 Introduction

The purpose of the traffic forecasts which have been prepared by ICF is to present an up-to-

date, impartial projection of the range of likely future traffic volumes at Hyderabad airport.

These forecasts take into consideration current market conditions, the near term outlook in

terms of both demand and carrier capacity, as well as the longer term trend that can be

expected for this market. The forecasts have been produced on an unconstrained basis (i.e.

do not assume that Hyderabad’s runway or terminals begin to impinge on growth).

Furthermore, unless otherwise stated, no additional market changes are assumed (e.g. the

relative cost of operating at Hyderabad versus other airports is assumed to stay constant),

significant deviation from strategy is not assumed, and of course no exogenous shocks such

as accidents, natural disasters etc. are predicted or factored into the forecasts.

5.2 Overview of Approach and Methodology

ICF have produced independent traffic forecasts for Hyderabad for the period 2015-2038. In

creating the forecasts, ICF have incorporated multiple approaches. The short-term forecasts

were based on immediate trends in traffic drivers identified, such as known fleet and network

plans of the airlines serving the airport, as well as regional development expectations. In

addition, the short-term forecasts were influenced by the current global economic environment

and ICF’s expectations of future recovery. Forecasting demand during a period of economic

uncertainty is always difficult, as the length and ultimate severity of the downturn remain

unknown. ICF have performed extensive analysis on how air traffic markets recover from

shocks (economic or otherwise). This analysis was used to estimate the extent of short-term

passenger declines and the length, timing, and magnitude of the anticipated recovery.

The diagram below illustrates the ICF’s general forecast methodology, which was adapted to

this particular study.


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Exhibit 5-1: General ICF Forecast Methodology

Source: ICF Note: Peak Period Forecasts were outside the scope of this assignment

Short-term Forecasts (Year 1 to 2)

To calculate the short-term forecast for the remainder of the FY 2015-2016 a variety of sources

were used. For the months April-December 2014 ICF had actual traffic data from GHIAL, so

this was used for this period. For the remaining months, analysis was undertaken of current

scheduled announcements, recent traffic trends and historic trends in the December-March

period for previous years.

FY2015

As seen in Exhibit 5-2, the year to date has outperformed FY14 quite significantly. This is

largely due to growth on the domestic market which has been driven by IndiGo and SpiceJet’s

significant upheaval of capacity at Hyderabad. Both carriers have increased seat capacity in

excess of 34%, primarily capacity has been added on Delhi and Mumbai routes but also

significant capacity has been added to more regional routes such as Vizag and Goa as IndiGo

looks to utilise Its rapidly expanding fleet.

Stakeholder Interviews

Population and GDP Statistics

TourismStatistics

HistoricTraffic

(ICAO/IATA/ACI)

Foreign Trade Trends

PassengersAirline Route Strategy

Tourist Industry Investment(e.g. Hotels)

Data Inputs

AirlineSchedules

Market Driver Analysis

Influence of Economy(GDP, disposable income)

Fleet Expansion

Traffic Forecasts

Cargo

Aircraft Operations

Regional Development Plans

Peak Periods

InfrastructureSizing

Econometrics

Experience in

Simila

r Markets

Market Shares

Propensityto Travel

Historic

Elasticity

Stakeholder Interviews

Population and GDP Statistics

TourismStatistics

HistoricTraffic

(ICAO/IATA/ACI)

Foreign Trade Trends

PassengersAirline Route Strategy

Tourist Industry Investment(e.g. Hotels)

Data Inputs

AirlineSchedules

Market Driver Analysis

Influence of Economy(GDP, disposable income)

Fleet Expansion

Traffic Forecasts

Cargo

Aircraft Operations

Regional Development Plans

Peak Periods

InfrastructureSizing

Econometrics

Experience in

Simila

r Markets

Market Shares

Propensityto Travel

Historic

Elasticity


Page 45

Exhibit 5-2: Year-to-date Traffic

Source: GHIAL

Looking ahead to the rest of the financial year, the best indicator of likely passenger volumes

is announced airline capacity. Using current and future capacity plans published by airlines

through OAG, ICF have analysed route-by-route, airline-by-airline the expected change in

services. Tracking the typical rate of utilisation for domestic and international, low cost and full

service carriers in these markets, ICF have been able to estimate with a high degree of

confidence the likely out-turn passenger numbers for the rest of the financial year.

As shown below, the increase in passengers in August can be related to the increase in

capacity. For the remainder of the year, growth is set to continue with growth also set to exceed

into 2016.

Exhibit 5-3: Domestic Capacity

Source: OAG

The most impacted of the top four routes has been Chennai which has seen a 50% rise in

year-on-year seats, with SpiceJet, IndiGo and Jet all increasing their capacity significantly.


Page 46

However, Air India continued to decrease their capacity on the Chennai route as it removed

one weekly flight.

Outside of the top four dominant routes, most regional routes saw rise in movements with Goa

and Indore both seeing strong ramp up of capacity by SpiceJet and in Indore’s case the entry

of IndiGo into the market.

The strong growth seen by the OAG schedules and the year-to-date figures suggest that FY15

will grow strongly and maintain the level of growth seen by the year-to-date actuals. On

balance, therefore, ICF’s Base Case forecast for domestic traffic is 18%.

In the international segment, the positive trend is continuing with year-on-year seat capacity

scheduled to increase by 13.5% with the tail of the FY seeing the most significant differences,

a trend expected to carry on into FY16. Etihad has been driving a lot of the international growth

as it maximises on its partnership with Jet and Abu Dhabi’s increased flight allocation.

Exhibit 5-4: International Capacity

Source: OAG

Dubai will remain the primary international route at Hyderabad with four carriers operating the

market. Abu Dhabi has seen significant growth with Etihad more than doubling their capacity

and Jet’s first full year of operations since its deal with Etihad.

Even in the near term some uncertainty remains: new services may be announced at short

notice, or already-planned services may be withdrawn due to poor sales or tactical changes

by the carrier. Furthermore load factors may be higher or lower than anticipated due to

changes in market conditions. The variance tends to be smaller in the near term than in the

longer term, partly since just over two quarters of the year are already accounted for and

changes typically affect only a small fraction of total capacity. This variance is captured in the

High Case and Low Case forecasts presented at the end of this chapter.


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FY2016

For the second year forecast, FY2016 ICF tailored an approach to the domestic and

international segments and reviewed available schedules which guides a judgement on the

likely capacity for the full-year which filtered into passenger volumes based on assumed load

factors and likely short-term changes such as additional carriers, increased fleet sizes, etc.

The domestic market was segmented into Mumbai, Delhi, Other T1 and Other Domestic

segments on the basis of historical evolution and their importance to Hyderabad today. Using

detailed PaxIS data, ICF were able to analyse how these markets have evolved both on an

origin and destination (O&D) and on-board basis (i.e. on direct flights between Hyderabad and

these points). From this analysis ICF confirmed the following:

Mumbai and Delhi remain the largest O&D and on-board markets.

The share of these market have declined as growth to/from Tier 1 cities and to/from

smaller domestic markets have typically exceeded their growth.

Several previously smaller markets, such as Ahmedabad and Goa, are now becoming

more and more important with strong and consistent traffic growth.

Most domestic O&D passengers to/from Hyderabad travel direct to their destinations,

particularly to/from the largest markets. Not surprisingly, passengers travelling to/from

smaller domestic markets more often take connecting flights to reach their ultimate

destination as well as those travelling to less well served areas like the regional parts

of India. However, transfer passengers will remain largely domestic and not a

significant part of total traffic volumes.

The projections for the near term consider the domestic market as a whole and also

segment it into these three main groups. The route group forecasts assign different

growth rates to the different markets consistent with their recent development and

prospects. Broadly speaking, Mumbai and Delhi being the most mature markets are

forecast to grow the least in percentage terms, while Tier One routes will continue to

grow more robustly, and Other Domestic services will grow most rapidly as Hyderabad

increasingly connects these smaller markets. In absolute volume terms however, Tier

One cities will continue to dominate capacity, but the percentage growth will be most

rapid in those markets that are still in relative infancy and thus represent the best

growth opportunities for Indian carriers. This pattern of domestic system development

has been observed in numerous other markets across the world and has already

begun in India, as shown by the PaxIS analysis undertaken.

Internationally, ICF undertook a similar analysis, building on the data presented in the


Page 48

International Market section. The main O&D traffic segments for Hyderabad are the Middle East and Asia. International markets are showing stronger growth fuelled by the large migrant labour population to the Middle East and the rising propensity to fly within the Far East. There is also strong transfer growth, as previously discussed, which is driven by many passengers choosing to connect between their origin and their final destination. This has an impact on the route-by-route traffic carried on Hyderabad services. The most significant features of the international market in terms of O&Ds and passengers by route are:

The Middle-East has been and remains the largest international market, with

approximately 50% market share of the international passengers. A position that is set

to remain constant over the medium term.

Eventually, as more destinations are added to the international network, the reliance

on middle-eastern traffic should lessen as Asian and European flights begin to

increase.

In forecasting these markets, ICF have measured the growth in O&D demand by region

and estimated its elasticity with respect to home GDP (these were determined based

on point-of-sale shares). Using these market level elasticities, ICF have forecasted true

O&D demand between Hyderabad and these regions.

Over time, ICF expect a greater proportion of O&D demand to be served directly, again

in line with route development profiles observed in other markets. As markets grow,

airlines seek opportunities to connect points directly, taking market share from

connecting operators by offering a more attractive service. In the near term however,

the continuing growth and dominance of the Middle East carriers cannot be

disregarded and in line with recent behaviour ICF anticipate continued service

additions from these carriers as well as incremental growth to long haul markets both

eastwards and westwards from Hyderabad.

Long-term Forecasts

The long-term forecasts were constructed using econometric analysis of the historical

relationship between domestic and international passengers at Hyderabad and Indian GDP.

A strong correlation was found between these variables, with an R2 of 0.83 for domestic and

0.95 for international traffic when measured over the time period 2004-2014.

The log-log form of the relationship allows for the coefficient on the dependent variable to be

interpreted as an elasticity and thus this functional form is generally favoured.


Page 49

Exhibit 5-5: GDP and Domestic Traffic Regression Analysis

Source: EIU, GHIAL, ICF

Exhibit 5-5 shows that over previous decade, there has been a close correlation between GDP

and traffic growth.

An econometric approach such as this is useful for quantifying the importance of the

underlying economic factors that influence aviation demand. However, econometric analysis

by itself can sometimes be limited by a lack of historical data, an inability to quantify all of the

factors that may influence air traffic levels, and the unavailability of objective forecasts for

certain explanatory factors. Furthermore, an econometric relationship between historical

passenger levels and various explanatory factors may not hold constant over the forecast

period. This is often the case for immature or rapidly developing air travel markets where the

income elasticities10 often decline over time. This can already be observed by the relative

slowdown in the rate of growth of both international and domestic traffic compared to GDP in

recent years, although of course there are numerous other factors already at play.

10 For example, an income elasticity of 2.0 indicates that a 1% increase in income produces a 2% increase in air passenger traffic.


Page 50

Exhibit 5-6: GDP and International Traffic Regression Analysis


As such, ICF have also applied a judgmental approach to modify the output of the econometric

models. The use of judgment is vital when the forecast horizon is long and a constant elasticity

model that is solely calibrated to historical data would overestimate the level of traffic growth

in the future. Therefore, ICF tapered the elasticity values estimated by regression analysis to

values representing a mature market as the 30-year forecast period progresses. In particular,

ICF have assumed, based on observations at numerous markets across the world, which both

domestic and international multipliers will trend towards mature levels in the 2020s. This

assumption is supported to additional propensity to fly analysis undertaken, which maps the

average number of trips by member of population and income level to global averages.


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Cargo Forecasts

ICF have used an econometric approach to the cargo forecasts, similar to that for passengers,

having established a strong correlation between Indian GDP and both total and segment cargo

volumes. In addition, ICF have used the latest available actual data from GHIAL, as well as

guidance from management regarding the near term and medium term outlook. The base case

represents a balanced view of both the positive and negative forces affecting the cargo

business, building on the market analysis described earlier.

The year-to-date figures show 18% growth for domestic tonnage and 1% for international

volumes. These represent the strongest growth rates seen at Hyderabad for some time and

as such are not seen as sustainable but instead represent the catching up with the pent up

demand at Hyderabad.

Exhibit 5-7: GDP and Domestic Cargo Regression Analysis


As shown in both charts, the historical relationship shows a high R-squared figure for both

international and domestic segments and elasticities of between 1.19 and 2.14, highlighting

how volatile cargo volumes are.


Page 52

Exhibit 5-8: GDP and International Cargo Regression Analysis


Domestic

Over the last ten years there has been a close correlation between India GDP and domestic.

Prior to FY14 where cargo growth achieved +11%, volumes had declined for two consecutive

years as Indian imports fell sharply. However, the economic outlook has been revised upwards

and Hyderabad’s central Indian location and strategic cargo plans are beginning to reap the

rewards of investment.

Over the long term, ICF expect the positive relationship with GDP to hold, and have assumed

a gradual maturing of the market, in line with trends seen elsewhere.

International

The International market has again shown a strong correlation between India GDP and

Imports/Exports, fuelled primarily by India’s growing Export market. The Y/Y figures suggest

growth has followed the built upon the small level of growth seen in FY14 and maintained that

across FY15.


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5.3 Passenger Forecasts

ICF Base Case forecasts for Hyderabad airport reach 43m total passengers by 2038, a CAGR

of 6.9% from 2014. Although considerably lower than the growth rates seen in the last decade,

this sustained growth still results in an airport that is larger than London Gatwick today.

Exhibit 5-9: Base Case Passenger Forecasts

Source: ICF

The bulk of the volume growth is driven by domestic passengers, reflecting the substantial

future scope for the Indian market to develop further. International traffic is forecast to grow at

a rate which maintains a nearly constant 28% share of the total market. It is expected that the

international market will grow below the rate of growth seen in the domestic market over the

short-term as Indian’s propensity to fly gradually reaches a level more commonplace in a

country of India’s size and GDP. In the med/long term, it is forecast that International traffic

maintains a slightly higher growth rate to domestic as international demand rises as India’s

tourism industry develops to a level seen elsewhere in Asia, this is on top of outbound demand

for work, VFR abroad and leisure travel by Indian nationals.

For the purpose of benchmarking, a few commercial forecasts were reviewed to gain

perspective. Airbus’ forecast that by 2023 India will become the world’s 3rd largest aviation

market behind China and the US. For the 2013-2033 period Airbus indicates the Indian

domestic market will grow at an annualised rate of 9.5%, ICF forecast Hyderabad to grow

significantly below this rate despite Hyderabad being of the larger opportunities for future

growth. Boeing’s forecast is far more optimistic with a CAGR of 8.6% for India between 2014

and 2033, ICF’s overall CAGR for Hyderabad is again closer to the 7% figure.

Exhibit 5-10 shows how the forecasted base case for passenger growth at three points across

the period compares to current airports in 2013. Currently, Hyderabad’s 9m passengers are

comparable to Cape Town and Birmingham. By 2026, it is expected that Hyderabad will handle

close to 25m passengers, just surpassing the levels of traffic seen at Doha today. Whereas

by 2038 it is forecasted to have approximately 43m passengers, which would place Hyderabad

at a similar position to Incheon.


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Exhibit 5-10: Traffic forecast comparison to 2013 Peer group

Source: ACI, ICF Note: Select sample of airports


Page 55

5.4 ATM Forecasts

The air traffic movement forecasts are closely linked to the passenger forecasts and reflect

expected trends in average aircraft sizes and load factors, both of which are trending upwards

globally, and have also been observed at Hyderabad.

Average passengers per ATM are forecast to gradually increase from 95 to 119 on domestic

services by 2038. This is a weighted average based on the future mix of regional jets and

narrow bodies likely to serve the future markets and an achievable load factor.

Freighter ATMs are forecast to remain a small minority of movements at Hyderabad, with the

bulk of cargo tonnage continuing to be carried in the belly hold of passenger aircraft. The share

of total movements is forecast to remain around 1.5%, although this still results in an almost

four-fold increase from 1,300 a year in 2014 to 4,400 by the end of the forecast period,

equivalent to 12 dedicated freighter movements a day.

Exhibit 5-11: ATM Forecast

Source: ICF

By 2038, it is expected that Hyderabad will handle over 300,000 movements a year, over

three-times the volumes seen in 2014.


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5.5 Cargo Forecasts

Hyderabad is well situated to develop its cargo business and the forecasts reflect the

significant potential for growth, reaching 400k tonnes by 2038, from its current level of 90,000

tonnes. This is equivalent to a CAGR 6.4%, which comprises 5.6% on domestic and 6.9% on

international volume growth.

Exhibit 5-12: Cargo Forecasts

Source: ICF

The relative growth patterns reflect both the forecast growth in passenger movements, which

will continue to carry significant volumes of cargo tonnage, as well as the expected higher

potential for international percentage growth, particularly in exports.

ICF have compared these forecasts with actual cargo traffic at some major airports around

the world. By 2026, Hyderabad will handle approximately 240k tonnes, well over double

today’s volumes. This is higher than present day Bangalore. Volumes will then further increase

by 2036, reaching approximately 400k tonnes comparable to present day.


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Exhibit 5-13: Cargo Comparison to 2013 peer group

Source: ACI, ICF Note: Select sample of Airports


Page 58

5.6 Sensitivities

Recognising the uncertainties inherent in any forecast, ICF has prepared the following low and

high case passenger traffic forecasts.

Examples of factors which may result in a lower than projected rate of traffic growth include:

Hyderabad airport is less successful in attracting international carriers as it faces tough

competition from other airports in India (e.g. Chennai or Bangalore)

The domestic traffic at Hyderabad is affected by rail improvements between Mumbai,

Bangalore or Delhi

Economic growth is less than anticipated

Fall in Rupee value raises airline cost base and subsequently fares increase, out-

pricing some passengers

Reduction in capacity by carriers facing financial difficulties

Increased airport competition, leading to airlines using other airports as Hubs over

Hyderabad.

Examples of factors which may result in a higher than projected rate of traffic growth include:

Hyderabad becomes a significant regional hub for central India

The demand for air travel to Hyderabad is higher than expected

Recovery in the Rupee value is more rapid than anticipated

Regulators relax further bilateral agreements, paving way for additional international

capacity

Hyderabad’s industry continues to rapidly increase and becomes a significant global

city.

Removal of India’s ‘5/20’ rule, enabling more international operations

Vistara and AirAsia successfully begin flights into/from Hyderabad

Cargo development and custom process reform leads to greater than anticipated cargo

growth.

Unless otherwise stated, all other assumptions remain unchanged (for example, airport

charges).

In the Low case passenger traffic, ICF have altered the traffic elasticity to a lower rate than in

the Base case both at the start of the medium term forecast and at maturity, this is used as a

proxy for generally weaker market conditions (a lower GDP would have the same effect). ICF

have also factored in more specific short term differences, such as IndiGo and SpiceJet

allocating their fleet deliveries to other regional airports such as Bangalore, and the removal

of some of the new international services included in the Base case.

In the High case, ICF increased the starting elasticity and reduce the rate of maturity compared

to the Base case, (a higher GDP forecast would have the same relative effect). ICF have also


Page 59

factored in more specific short-term differences such as Vistara/AirAsia entering the market

and additional fleet orders by the major operators in the domestic and international markets at

Hyderabad.

As illustrated in Exhibit 5-14, the High and Low case forecasts place the expected range of

variance in passenger traffic in 2026 to be between 22m passengers to approximately 27.5m.

By 2032, these figures will vary between 27m to 38m and for the final year of forecast, the

assumptions outlined above yield a low and high case result which range from 34m to 51m.

The widening of the range over time reflects the increasing uncertainty inherent in any long

term forecast. As previously stated, no constraints have been considered in this analysis.

Exhibit 5-14: Scenario Passengers Forecasts

Source: ICF

The cargo forecasts for the high and low case were developed on a similar basis, combining

slightly stronger/weaker economic conditions with further specifics regarding potential

opportunities, particularly in the high case, which includes the potential for a change in

development led by GHIAL’s efforts to increase its share of the consolidated market and it’s

catchment area by the effective use of Air Freight Stations located across the central parts of

India. The high case sees the cargo market double within the next seven years, whereas in

the low case this feat takes ten years. At the total level, cargo tonnage is forecasted to range

from 327k to 475k tonnes by the end of the forecast period.


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Exhibit 5-15: Scenario Cargo Forecasts

Source: ICF

Project Name 61

Appendix A: Forecast Details


Page 62

Figure 1: Base Case Passenger Forecasts

FY Ending Domestic Y/Y International Y/Y Total Y/Y Growth

Mar-10 4,794 - 1,700 - 6,494 - Mar-11 5,759 20.1% 1,876 10.4% 7,634 17.6% Mar-12 6,703 16.4% 1,899 1.3% 8,602 12.7% Mar-13 6,291 -6.2% 2,085 9.8% 8,376 -2.6% Mar-14 6,358 1.1% 2,370 13.6% 8,728 4.2% Mar-15 7,518 18.3% 2,691 13.5% 10,209 17.0% Mar-16 8,542 13.6% 3,013 12.0% 11,555 13.2% Mar-17 9,487 11.1% 3,340 10.9% 12,827 11.0% Mar-18 10,470 10.4% 3,683 10.3% 14,153 10.3% Mar-19 11,484 9.7% 4,039 9.7% 15,523 9.7% Mar-20 12,553 9.3% 4,418 9.4% 16,971 9.3% Mar-21 13,638 8.6% 4,807 8.8% 18,445 8.7% Mar-22 14,710 7.9% 5,197 8.1% 19,907 7.9% Mar-23 15,758 7.1% 5,583 7.4% 21,341 7.2% Mar-24 16,786 6.5% 5,969 6.9% 22,755 6.6% Mar-25 17,767 5.8% 6,344 6.3% 24,111 6.0% Mar-26 18,705 5.3% 6,712 5.8% 25,417 5.4% Mar-27 19,591 4.7% 7,070 5.3% 26,661 4.9% Mar-28 20,502 4.7% 7,439 5.2% 27,942 4.8% Mar-29 21,438 4.6% 7,821 5.1% 29,259 4.7% Mar-30 22,399 4.5% 8,215 5.0% 30,613 4.6% Mar-31 23,383 4.4% 8,620 4.9% 32,003 4.5% Mar-32 24,400 4.4% 9,041 4.9% 33,441 4.5% Mar-33 25,451 4.3% 9,479 4.8% 34,930 4.5% Mar-34 26,536 4.3% 9,933 4.8% 36,469 4.4% Mar-35 27,656 4.2% 10,404 4.7% 38,061 4.4% Mar-36 28,812 4.2% 10,893 4.7% 39,705 4.3% Mar-37 30,003 4.1% 11,399 4.6% 41,402 4.3% Mar-38 31,231 4.1% 11,923 4.6% 43,154 4.2%

CAGR Domestic International Total FY14-20 12.0% 10.9% 11.7% FY20-30 6.0% 6.4% 6.1% FY30-38 4.2% 4.8% 4.4% FY14-38 6.9% 7.0% 6.9%

Source: ICF


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Figure 2: Base Case Cargo Forecasts

FY Ending Domestic Y/Y International Y/Y Total Y/Y Growth Mar-10 29 - 37 - 66 - Mar-11 36 23.9% 44 19.6% 81 21.5% Mar-12 34 -5.3% 47 5.9% 81 0.9% Mar-13 34 -2.5% 50 7.2% 84 3.1% Mar-14 37 11.2% 53 4.9% 90 7.4% Mar-15 44 18.0% 60 12.9% 104 15.0% Mar-16 47 7.6% 66 11.0% 114 9.5% Mar-17 51 7.5% 73 10.8% 124 9.4% Mar-18 55 7.2% 81 10.2% 136 9.0% Mar-19 58 6.9% 89 9.7% 147 8.6% Mar-20 62 6.8% 97 9.5% 159 8.4% Mar-21 66 6.5% 106 9.0% 172 8.0% Mar-22 70 6.1% 115 8.3% 185 7.5% Mar-23 75 5.7% 123 7.7% 198 7.0% Mar-24 79 5.5% 132 7.2% 211 6.6% Mar-25 83 5.1% 141 6.7% 224 6.1% Mar-26 87 4.9% 150 6.2% 237 5.7% Mar-27 91 4.6% 159 5.8% 249 5.4% Mar-28 95 4.4% 167 5.4% 262 5.0% Mar-29 99 4.1% 176 5.0% 274 4.7% Mar-30 102 3.9% 184 4.6% 286 4.3% Mar-31 106 3.8% 192 4.5% 298 4.3% Mar-32 110 3.8% 200 4.4% 311 4.2% Mar-33 114 3.7% 209 4.4% 324 4.2% Mar-34 119 3.7% 218 4.4% 337 4.1% Mar-35 123 3.7% 228 4.3% 351 4.1% Mar-36 128 3.6% 237 4.3% 365 4.0% Mar-37 132 3.6% 247 4.2% 380 4.0% Mar-38 137 3.6% 258 4.2% 395 4.0%


Source: ICF


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Figure 3: Base Case Air Transport Forecast

FY Ending Domestic Y/Y International Y/Y Cargo Y/Y Total Y/Y Growth

Mar-10 67 - 14 - 1 - 81 - Mar-11 69 3.7% 14 1.9% 2 115.8% 85 4.5% Mar-12 86 23.6% 14 2.1% 1 -22.7% 101 19.2% Mar-13 75 -12.1% 15 8.9% 1 -2.4% 92 -9.1% Mar-14 70 -7.3% 16 4.1% 1 2.1% 87 -5.2% Mar-15 76 9.2% 17 5.8% 1 9.3% 95 8.6% Mar-16 83 8.9% 18 6.2% 2 8.3% 103 8.4% Mar-17 91 9.9% 20 10.7% 2 8.2% 113 10.0% Mar-18 100 9.4% 22 10.1% 2 7.8% 124 9.5% Mar-19 109 8.8% 24 9.5% 2 7.4% 135 8.9% Mar-20 118 8.4% 26 9.2% 2 7.2% 146 8.5% Mar-21 127 7.7% 28 8.6% 2 6.8% 158 7.9% Mar-22 136 7.0% 31 7.9% 2 6.3% 169 7.1% Mar-23 144 6.2% 33 7.2% 3 5.8% 180 6.4% Mar-24 153 5.7% 35 6.7% 3 5.5% 190 5.8% Mar-25 160 5.0% 37 6.1% 3 5.0% 200 5.2% Mar-26 167 4.4% 39 5.6% 3 4.6% 210 4.7% Mar-27 174 3.9% 41 5.1% 3 4.3% 218 4.1% Mar-28 180 3.8% 43 5.0% 3 4.0% 227 4.1% Mar-29 187 3.7% 46 4.9% 3 3.6% 236 4.0% Mar-30 194 3.7% 48 4.8% 3 3.3% 245 3.9% Mar-31 201 3.6% 50 4.7% 4 3.2% 255 3.8% Mar-32 208 3.6% 52 4.7% 4 3.2% 264 3.8% Mar-33 215 3.5% 55 4.7% 4 3.2% 274 3.7% Mar-34 223 3.5% 57 4.6% 4 3.1% 284 3.7% Mar-35 231 3.4% 60 4.6% 4 3.1% 295 3.7% Mar-36 238 3.4% 63 4.5% 4 3.1% 305 3.6% Mar-37 247 3.4% 66 4.5% 4 3.0% 316 3.6% Mar-38 255 3.3% 68 4.4% 4 3.0% 328 3.6%

CAGR Domestic International Cargo Total FY14-20 9.1% 8.6% 8.0% 9.0% FY20-30 5.1% 6.2% 4.9% 5.3% FY30-38 3.5% 4.6% 3.1% 3.7% FY14-38 5.5% 6.2% 5.1% 5.7%

Source: ICF


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Figure 4: High Case Passenger Forecasts




Source: ICF


Page 66

Figure 5: High Case Cargo Forecasts



Source: ICF


Page 67

Figure 6: High Case Air Transport Forecast

Source: ICF


Mar-10 67 - 14 - 1 - 81 - Mar-11 69 3.7% 14 1.9% 2 115.8% 85 4.5% Mar-12 86 23.6% 14 2.1% 1 -22.7% 101 19.2% Mar-13 75 -12.1% 15 8.9% 1 -2.4% 92 -9.1% Mar-14 70 -7.3% 16 4.1% 1 2.1% 87 -5.2% Mar-15 76 9.2% 17 5.8% 1 9.3% 95 8.6% Mar-16 85 11.1% 18 8.7% 2 10.5% 105 10.7% Mar-17 94 10.6% 21 11.8% 2 10.3% 116 10.8% Mar-18 103 10.2% 23 11.2% 2 9.8% 128 10.3% Mar-19 113 9.5% 25 10.5% 2 9.3% 141 9.7% Mar-20 124 9.2% 28 10.2% 2 9.1% 154 9.4% Mar-21 134 8.6% 31 9.6% 3 8.6% 168 8.8% Mar-22 145 7.9% 33 8.9% 3 7.9% 181 8.1% Mar-23 155 7.2% 36 8.2% 3 7.3% 194 7.4% Mar-24 166 6.6% 39 7.6% 3 6.8% 208 6.8% Mar-25 176 6.0% 41 6.9% 3 6.3% 220 6.1% Mar-26 185 5.4% 44 6.4% 4 5.8% 233 5.6% Mar-27 194 4.9% 47 5.9% 4 5.4% 245 5.1% Mar-28 204 4.8% 49 5.8% 4 5.0% 257 5.0% Mar-29 213 4.7% 52 5.7% 4 4.5% 270 4.9% Mar-30 223 4.6% 55 5.6% 4 4.1% 283 4.8% Mar-31 233 4.5% 58 5.5% 4 4.0% 296 4.7% Mar-32 244 4.5% 61 5.4% 5 4.0% 310 4.7% Mar-33 255 4.5% 65 5.4% 5 4.0% 324 4.6% Mar-34 266 4.4% 68 5.3% 5 3.9% 339 4.6% Mar-35 278 4.4% 72 5.3% 5 3.9% 354 4.5% Mar-36 290 4.3% 75 5.2% 5 3.8% 370 4.5% Mar-37 302 4.3% 79 5.2% 6 3.8% 387 4.4% Mar-38 315 4.2% 83 5.1% 6 3.7% 404 4.4%



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Figure 7: Low Case Passenger Forecasts




Source: ICF


Page 69

Figure 8: Low Case Cargo Forecasts



Source: ICF


Page 70

Figure 9: Low Case Air Transport Forecast

Source: ICF


Mar-10 67 - 14 - 1 - 81 - Mar-11 69 3.7% 14 1.9% 2 115.8% 85 4.5% Mar-12 86 23.6% 14 2.1% 1 -22.7% 101 19.2%

Mar-13 75 -

12.1% 15 8.9% 1 -2.4% 92 -9.1%

Mar-14 70 -7.3% 16 4.1% 1 2.1% 87 -5.2% Mar-15 76 9.2% 17 5.8% 1 9.3% 95 8.6% Mar-16 81 6.5% 18 3.8% 2 7.1% 101 6.0% Mar-17 88 8.2% 19 9.1% 2 7.0% 109 8.4% Mar-18 95 7.8% 21 8.5% 2 6.6% 118 7.9% Mar-19 102 7.2% 22 8.0% 2 6.2% 126 7.3% Mar-20 109 6.9% 24 7.7% 2 6.0% 135 7.0% Mar-21 116 6.3% 26 7.2% 2 5.6% 144 6.4% Mar-22 122 5.6% 28 6.6% 2 5.1% 152 5.8% Mar-23 128 4.9% 29 6.0% 2 4.7% 160 5.1% Mar-24 134 4.4% 31 5.5% 2 4.3% 167 4.6% Mar-25 139 3.8% 32 4.9% 3 3.9% 174 4.0% Mar-26 143 3.3% 34 4.5% 3 3.5% 180 3.5% Mar-27 147 2.8% 35 4.0% 3 3.2% 185 3.0% Mar-28 151 2.8% 37 4.0% 3 2.8% 191 3.0% Mar-29 156 2.7% 38 3.9% 3 2.5% 196 2.9% Mar-30 160 2.6% 39 3.8% 3 2.2% 202 2.9% Mar-31 164 2.6% 41 3.7% 3 2.2% 208 2.8% Mar-32 168 2.6% 42 3.7% 3 2.1% 213 2.8% Mar-33 172 2.5% 44 3.6% 3 2.1% 219 2.7% Mar-34 177 2.5% 46 3.6% 3 2.1% 225 2.7% Mar-35 181 2.5% 47 3.6% 3 2.1% 231 2.7% Mar-36 185 2.5% 49 3.5% 3 2.1% 237 2.7% Mar-37 190 2.4% 51 3.5% 3 2.1% 244 2.6% Mar-38 194 2.4% 52 3.4% 3 2.0% 250 2.6%


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