Wednesday, December 22, 2010

Airport City and Aerotropolis Approach for SIA Development

Shaligram Poudyal
(Deputy Director :  Civil Aviation Authority of Nepal
Changing Characteristics of the Airport Business:
In the 19th and 20th century, railroads and highways were the basis of a nation’s industrial development.  In this 21st century, amid the forces of globalization and internationalization, airports are emerging as the new linchpins in the movement and exchange of people, products and ideas, and creators of high value-added. A nation’s economic competitiveness today is increasingly determined by the competitiveness of its airports.

Airports are capital intensive projects. Billions of dollars of investment is necessary to develop airport facilities. In the case of existing airports, facility expansion is required to address the growth in traffic. Technology advancement is also demanding bigger facilities (such as a 4000 meter runway and wider parking bay for A-380 Aircraft). Modern international airports are virtually a large business ventures. In the airport business return on investment is not much attractive. It generally takes more than ten years to turnaround the capital investment. Thus airports are concerned to safeguard their investment looking for the long term financial sustainability.   

There is regional and global competition among international airports.  They want to reduce aeronautical charges to attract more and more flights. By this tendency, the proportion of aeronautical revenue is decreasing. To compensate the deficit, airports are focusing to increase the share of non-aeronautical revenues. Non-aeronautical revenue comes from commercial facilities. Successful airports are getting more than two third of revenue through commercial facilities. In this process airports are exploring for new business models. They want to be innovative. They are inventing new playing fields to expand their business. The concept of Airport City and Aerotropolis has emerged from this background.

Concept of Aerotropolis:
The concept of “Aerotropolis” envisions an airport and airport city at the center and a greater airport related activity centered city, linked to, and generating synergy effects with shopping, relaxation, tourism, entertainment, convention and other facilities located in area surrounding the airport. As a national economic growth engines, airports must generate demand and position themselves for heightened competition. Through airport city and aerotropolis airports like to place themselves as the core engine of national development. Aerotropolis concept brings important industry, trade, business and commercial activities within the airport area. With airport city and aerotropolis airport are not only the place of departure but also an important destination to visit, stay and to doing businesses.  A model of Aerotropolis as given by Professor Dr. John D. Kasarda is illustrated below:

A Model of Aerotropolis

As given in the above model in the center there are Airport  Terminal Buildings and Shopping Arcades,  Air Cargo Facilities, Offices, Hotels and Parking Facilities. This core area is called Airport City. In the outer side in one block, there is Medical Cluster, Technology Park and Sports Complex. In another block, there is Industrial Park, and Free Trade Zone. Distribution Centres, Bonded Warehouses and area of special use is also there in the surroundings. Manufacturing, Flex Tech and Residential Area are also allocated. On the other side there are Business Parks, Office Corridor, Hotels, World Trade Complexes and Convention Center. There are ICT Corridor, Merchandise Marts, Entertainment Districts and Factory Outlets. This whole area combined is called Aerotropolis. In the facility side, there are roads, expressways and train connections to airport, airport city and aerotropolis from around multi-directions. In such a way Aerotropolis is a compact metropolis fully dedicated to produce and distribute goods and services in a well-planned setting.  

What the World is doing on Airport City and Aerotropolis?
The concept of Airport city began to emerge from the 1990’s. Many of the airports have already adopted this concept. Incheon airport of Korea has acquired a vast area of land to build ‘Air City’. They are integrating airport and seaport. In 2009 there has been 164 billion dollor of trade through Incheon airport representing 24% of Korea’s total trade. They are planning to invest about 30 billion pound in Air City development. Hong Kong airport has developed airport city naming as ‘Sky City’.  Aerotropolis concept is yet new. It is coming from this very decade. Airports  such as  Memphis, Atalanta, Houston, and Detroit of the USA are adopting aerotropolis concept. Dubai’s Al Maktoum International Airport has a vast plan to develop aerotropolis. In india, Durgapore Airport will develop aerotropolis within a 9.0 square kilometer area partnering with Singapore’s Changi. In Delhi airport GMR the airport operator has got land from airports Authority of India for aerotropolis development.   

Why Airport City and Aerotropolis in SIA?
As mentioned above, the concept of airport city and aerotropolis has been essential for airport’s long term financial sustainability. The site of Second International Airport (SIA) is going to be developed from the very green field status. Billions of dollar investment in SIA development has to be financially sustainable. Investment should produce reasonable return on capital. Since projected traffic is not so high, we must choose a business model to sustain in future. For sustainability, we should follow suit as other successful world airport operators are doing. It is probable that SIA will be developed under BOOT modality. Private investors want to minimize the risk of loss.  They want attractive return on investment. With availability of sufficient land, private airport developers would favor to take airport city and Aerotropolis concept in SIA.

Nijgadh and its vicinity area are appropriate to aerotropolis development. Birgunj is a trading gateway of Nepal. There is modern dry port facility. Birjung-Pathlaiya is being developed as an industrial corridor. In Hetaunda (about 40 km) there is already an industrial zone. Royal Chitwan national park a touristic destination of Nepal is reachable within two hour drive. All these conditions are favourable for aerotropolis development in Nijgadh. Moreover, SIA can be an air cargo hub to serve the transit trade between India-China via Tibet- Nepal. Furthermore, the feasibility for Airport City and Aerotropolis development in SIA can be understood from the following points:
1. The SIA Site and Available Land:
Nijgadh is  in the mid development region of Nepal. It is adjacent to the East West Highway. Birgunj-Pathlaiya industrial corridor is near by the site. There is a multi-model dry port in Birgunj. With a fast track connection, SIA would be within one and half hour reach from Kathmandu (72 km) and 20 minutes reach from Birgunj(25 km).  
Modern international airport especially in the context of developing airport city and aerotropolis, requires a vast land area. There is plenty of government land available around the SIA site. It is estimated that SIA would require about 8000 hectares of land (80 square km). Most of the land of the site area is forest which is government owned. Private land acquisition will be minimum (within 100 hectares).

2. Air Transport Feasibility:
TIA has limitation of facility expansion for future air traffic and passenger growth. There is no feasibility of parallel runway. Instrument landing system is not feasible. Due to proximity of hills in the north side, missed approach is not easy for large aircrafts. Approach air space is already in congestion resulting in-sky queuing and holding. All this situation is demanding the construction of a second international airport in Nepal.
At present, where there are two million international passengers in TIA, it may be said that SIA is not yet feasible in Nepal. But the concept of modern international airport development is to be taken differently. Even with a few million passengers, SIA can be feasible integrated with the concept of airport city/aerotropolis.
2.1 Traffic Forecast:
Actual international passenger traffic of TIA in 2009 was 2.03 million. Recently Asian Development Bank (ADB) has given traffic projection of TIA in its Technical Assistance Report. This is a GDP based projection at 95% confidence level. Taking data of this projection, by 2028 SIA will get 3.17 million. We assume that SIA will be completed by 2018 and TIA will also continue international operation even after SIA operation goes on.  On this basis the tentative passenger share between TIA and SIA would be seen as follows: 

Passenger Traffic Projection at TIA Based on GDP (Regression Analysis)
And Distribution of Passengers Between SIA and TIA
International Passenger Forecast by ADB for TIA (Projection based on GDP)**
In the Most Likely Case

Most Likely
Share of SIA
Share of TIA
2.53 million
3.01 million
2.77 million

2.77 million
3.26 million
4.03 million
3.65 million
0.75 million
2.9* million
4.16 million
5.29 million
4.73 million
1.83 million
2.9 million
5.27 million
6.86 million
6.07 million
3.17 million
2.9 million
*Under the ADB Loan assistance TIA facilities are going to be added to serve for 2.9 million passengers per annum
** Civil Aviation Airport Project ADB PPTA: NEP 38349-01, Final report Volume-1, Airport Planning and Engineering, 2009, appendix A page 36

This traffic projection shows that after 18 years from now i.e in in 2028 passenger traffic for TIA  will be in the range of  5.3 to 6.9 million. Assuming that TIA facility will not be expanded beyond 2.9 million passenger capacity, passenger share of SIA by 2028 will be about 3.17 million. In such a low passenger flow SIA should be developed with innovative and sustainable business model such as airport city and aerotropolis.
(Note that there is also a chance of GDP growth to go higher than expected along with the political conflict resolution. But in that case also total international passenger may not exceed 10 million by 2028)

2.2 Fast Track Link to Kathmandu and Birgunj:
Most of the international airports are situated around 30 kilometer distance from the main city or state capital. A few others are little bit far (Narita Airport at 57 Km, Kualalumpur airport at 50km and the Incheon airport at 70km) distance. In Nepal due to hilly region there is no appropriate location available within 30/40 kilometer distance Kathmandu. Nijgadh is apparently in far distance. But with a fast track facility, Kathmandu will be within 72 kilometer, reducing travel time to one and half hour drive. In case the fast track is not constructed, SIA will not be feasible in any way. Therefore a four-lane fast track completed before the completion of SIA will enhance its feasibility. It is also desirable that the fast track be extended up to the dry port in Birgunj. If we talk only about fast trak,it is a most required infrastructure for Kathmendu- Birgunj road connectivity. It means fast track is feasible even without SIA project.

Other Consideration in the Context of SIA
Project Financing Arrangements
Billions of dollars is required for airport construction and development. Government fund is limited. CAAN is also not in a position to accumulate such a huge amount. Therefore, possibility of using local technology and resources should be explored. Structures design should be flexible to allow annexing or extension as per the growth of traffic. Maximum possible space should be allocated to non-aeronautical revenue generation purpose such as retail shop, duty free area and shopping mall. 

Fund arrangement from government resource is almost impossible. But, if we plan right from now a certain percentage of funds can be accumulated. For example, one of the funding resources would be the revenue generated from the sale of tree logs of the forest land under SIA development area. Secondly, Airport Development Fee-ADF (say, $15 and $3 per departing international and domestic passengers respectively) may be charged in TIA. Estimated annual collection of ADF would be about $ 20 million.  Out of this 60% (or about $ 12 million annually) should be deposited in "SIA Development Fund". This fund should be commercially managed to earn interest as well. In a seven years period this fund with interest may reach up to $100 million.  

Implementation & Institutional Arrangement:
Presently, CAAN is the statutory right to regulate airspace, to operate airports and to provide air traffic services throughout Nepal. Nevertheless, for SIA development project, government must play crucial role. It is also desirable that a separate subsidiary company under CAAN be established for project implementation. After project completion, the operational responsibility be given to a separate fully autonomous SIA Company

To Sum up:
The development of SIA should be taken as a primary necessity of economic development of Nepal. As the passenger availability for SIA is not so attractive, SIA should be developed for long term financial sustainability with the Airport City and ‘Aerotropolis’ business model. Kathmandu-Nijgadh-Birgunj fast track/ express way will be the pre-requisite for SIA development.  By some technicality, airports are to be located in a considerable distance from the main city or capital. Thus most of the new international airports have an inherent challenge to develop from hinterland to a business hub and an air city. Feasibility study, master plan and development of SIA should be guided from this principle.

Professor Dr. Kasarda saya “The true challenge is planning to get the Aerotropolis(or airport city) right.  If there is not appropriate planning, airport-area development will be spontaneous, haphazard, and economically inefficient and ultimately unsustainable.  The aerotropolis model brings together airport planning, urban and regional planning, and business-site planning, to create a new urban form that is highly competitive, attractive, and sustainable." Let this quotation be our guideline to airport, airport city and aerotropolis development in Nijgadh.

1              Civil Aviation Airport Project ADB PPTA:NEP 38349-01, Final report Volume-1, Airport Planning and Engineering, 2009 
2              Kasarda Aerotropolis Expansion Theory,, Accessed on 9/27,2010
3              Evolutionchapter1.pdf,, Accessed on 7/12 ,2010
4              TIA Flight Moovement Data for 2009 As per the records of TIACAO, Flight Permission Sectin
5              Second-international-airport,, Accessed on 30/09, 2010

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