The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Retail Infrastructure co exists with Aviation, Urban


India’s next hottest shopping destination may not be its swanky malls, but its airports, which are getting a rapid makeover into 21st century jet-setter retreats.

As the airports located in Mumbai, Delhi, Bangalore and Hyderabad get modernized, they are leveraging their huge swathes of renovated interiors to earn extra revenue. In the process, they are bringing to India a new brand of retailers and hoteliers: the airport specialists.

“In mature markets, the revenues from an airport point of view—are coming more and more from commercial activity. Commercial activities such as office space, car parking, food and beverages and retail represent 60% of the total turnover of the airport,” said Roberto Graziani, president and CEO of the Swiss-based Nuance Group, one of the top airport retailers in the world. Graziani spoke to Mint during his recent visit to India.

Last year, The Nuance Group AG and its local joint-venture partner, Shoppers’ Stop Ltd, won from Bangalore International Airport Ltd (BIAL) the rights to operate duty-free retail at India’s fourth-biggest airport for five years. Shoppers’ Stop also bagged the mandate to handle retail in the domestic part of the Bangalore airport supported by Nuance.

Another reason why airports the world over are looking at other options of raising money are the spiralling aviation fuel prices and the resultant pressure from airlines to reduce landing fees. “Airports have to find a way to finance the huge investments for terminal development and renovation,” Graziani said.

Typically, non-aeronautical revenue accounts for about 40% of the total revenue of an airport located in any of the four metros of Delhi, Mumbai, Chennai and Kolkata. With real estate prices touching new highs in these cities, growing nearly 30% in a year, airports offer a viable option for real-estate and retail players. “Duty free is the biggest potential revenue generator for retailers and airport operators,” said Meghna Goenka, general manager, retail services, at property consultants Trammell Crow Meghraj Pvt. Ltd.

At the airports in Delhi and Mumbai, it is the upgrade and the additional space being created that is opening up value. The GMR Group, which is modernizing India’s second-busiest airport in Delhi, the Indira Gandhi International (IGI) airport, has appointed Jones Lang LaSalle to prepare a strategic plan for monetizing 250 acres of land. Of this, 50 acres will be bid out to global real-estate developers in the next few weeks to raise Rs3,000 crore to part-fund the project cost of Rs8,600 crore, says Madhu Terdal, chief financial officer, corporate strategic fi­nance, GMR Group.

The remaining land will be put to commercial use later for passenger or airport operation related activities.

BIAL and the Hyderabad international airport are relying on commercial activities to raise additional resources. Worldwide, airports such as London Heathrow host a range of products for retail, both inside and outside their departure lounges—from grocery chains run by Marks & Spencer Plc. for everyday food and snacks, to an upmarket Giorgio Armani cosmetics counter.

Hotel chains, rushing in to address an estimated 1,50,000 room shortage in India, are also queueing up at airports. BIAL, which is promoted by a consortium comprising Siemens Projects Ventures, Larsen & Toubro Ltd, Unique Development -Corp. and the Airports Authority of India, has selected the Oberoi Group and Larsen & Toubro to build and operate a first-class international hotel under the Trident Hilton brand within walking distance of the terminal building.

The hotel will cost about Rs.250 crore and offer 321 plush rooms, large conference facilities, restaurants and a world-class spa. If the project meets its deadline, the hotel will be in place by November next year.

The GMR Group has a land bank of about 700 acres at the Hyderabad airport, too, and it plans to monetize this in the next few years. A consortium led by GMR has tied up with Singapore’s Accor Hotels and Resorts to operate its first business hotel here. The hotel, which will start operations after March 2008, will come up on a five-acre site about three km from the passenger terminal.

According to GMR Hyderabad International Airport Ltd (GHIAL) chief operating officer T. Srinagesh, the hotel is being developed in line with practices followed by all leading airports in the world. The competition between Hyderabad and Bangalore to become India’s next centre for outsourcing and technology companies is adding fuel to the race to develop airport properties. The GHIAL-led consortium plans more commercial real-estate development, including convention centres, business hotels, business park, industrial estate, free-trade zone, shopping malls and entertainment complexes.

Nuance and Shopper’s Stop have won a seven-year deal to operate retail at Hyderabad International Airport, too. They expect to earn revenue of up to $240 million (Rs984 crore) over the seven years. The contract will commence in March 2008, when the airport is to open.

BIAL also plans to have commercial activity for large offices and other related real-estate spaces.

In future, the airport city will have more hotels, along with retail, serviced apartments, office park, software campuses and a lot of free public spaces, a BIAL spokesperson said.
BIAL will be looking for two mono-brand outlet operators each in the domestic and international departure areas, along with retail outlets on the curbside. It will develop a mall, which will offer merchandise and food courts and be an alternative destination for those who prefer a lively experience.

As airports “grow, they are sitting on acres of land” that will allow for the building of modern spaces, said B.S. Nagesh, managing director, Shoppers’ Stop, a listed entity promoted by the K. Raheja Group. “Today, there are no malls, there is no good environment to do the kind of single-brand retail that is permitted by the government,” he said. Shoppers’ Stop’s two contracts, estimated to be worth $150 million, cover retail space of approximately 3,400 square metres.

Mumbai International Airport Ltd (MIAL) recently awarded the duty-free retail contract for the Chhatrapati Shivaji International Airport to a joint venture between Madrid-based airport duty-free retailer Aldeasa and the duty-free unit of state-owned ITDC. “During the three-year contract, MIAL expects to garner revenues of Rs571 crore,” said Manish Kalghatgi, general manager, MIAL, which is a joint venture between GVK Group, Airports Company South Africa, Bidvest and the Airports Authority of India.

The GMR Infrastructure Ltd-led consortium, which was given the mandate to modernize the IGI airport in Delhi, has awarded a three-year, Rs500 crore duty-free shopping contract to the Alpha-Pantaloon consortium, comprising UK-based Alpha Airports Group Plc. and Pantaloon Retail (India) Ltd of the Future Group.

The new Alpha-Pantaloon duty-free shops will run one outlet in arrivals and four in departures, covering an area, in total, of about 8,000sq. ft.

Source: Mint, April 2007

 via  Airports sell land for funding  

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