The opportunity and the challenge in monetizing small airports.

The government is reportedly lining up another set of airports to offer to private players. Indian airports present opportunities to unlock value, but the creamy top is largely out of bounds and the action is in the bulging, less-lucrative middle

When it comes to offering public assets to private players, the airport sector in India has already taken a lead. In early-2019, the government granted 50-year rights to private players to run six airports. The Adani Group outbid rivals for all six. Two years on, the government is reportedly preparing the runway for the next round.

The largest Indian airport assets have a private touch that predates the 2020 sale. Over the last three decades, through various mechanisms, the government involved the private sector in six airports, existing and new. These handled 52% of passenger traffic in 2019-20. The six airports bagged by Adani in 2019 handled another 10%.

Thus, the current government push is for a play on the remaining 38% of passenger traffic. Although not prime assets, the potential of this bulging middle—many airports handling small volumes of traffic—lies in their long-term growth potential, and the opportunity for monetization in private hands.

Unlike the volatile and attrition-filled airline business, the business of airports is a lot more stable. It offers a natural competitive advantage: the large land and capital requirements, and logistics, means a city is likely to have only one airport. Even when it has more, the existing operator tends to have a right of refusal on the second, as is the case with new airports coming in the vicinity of the existing ones in Delhi and Mumbai.