Airports to Metro, how non-core businesses bring firms more money

Across key transport infrastructure segments, non-core revenue streams are assuming growing significance as operators look to diversify revenue to de-risk businesses and subsidise core operations to keep services economical for consumers.

Core aeronautical revenue share of India’s largest airport in Delhi reduced to 24 per cent in FY23 from 46 per cent in FY18, the year it became a public company. Since then, it has consistently earned more from non-aeronautical revenue streams including verticals like duty free, space rentals, and cargo, and commercial property development than from core revenue streams including landing charges, user development fee (UDF), and baggage x-ray charges. This is primarily due to low aeronautical charges levied upon airline operators for landing and parking aircraft.

Similarly, Delhi Metro Rail Corporation (DMRC) has become increasingly reliant on external project income, which accounted for 48 per cent of operating revenue in FY22 compared to 35 per cent in FY19, while core revenue generated from passenger traffic dropped to 39 per cent in FY22 from 55 per cent in FY19. DMRC has capitalised on being India’s pioneering metro project by executing projects for metro operators across the country including in Mumbai, Patna, and Kochi. DMRC realised in its early years that to avoid heavy reliance on government funding, it had to look towards expanding non-traffic revenue, which has been its strategy since FY06 when non-traffic revenue first exceeded traffic revenue and has done so consistently from then onwards.

IRCTC, incorporated in 1999, generated higher net profit from e-ticketing services than from catering and Rail Neer sales in FY23. Even though IRCTC’s core revenue from catering and the sale of its flagship bottled water product, Rail Neer, accounted for 50 per cent of total operating revenue in FY23, compared to e-ticketing revenue share of 34 per cent, it made Rs 1,021 crore in net profit from e-ticketing services compared to Rs 204 crore from catering and Rail Neer sales. IRCTC has the exclusive mandate for Indian Railways’ e-ticketing services, which began in 2002.

Indira Gandhi International Airport’s operator Delhi International Airport Limited (DIAL), in which the GMR Group owns a majority stake, generated an operating revenue of Rs 3,990 crore in FY23, of which Rs 938 crore was from aeronautical services and charges, Rs 2,477 crore from non-aeronautical services and charges, and Rs 575 crore from licence fees in connection with certain commercial property development activities at the airport.

DIAL’s aeronautical revenue share dropped to 24 per cent in FY23 from 30 per cent in FY19 as the share of revenue generated through commercial property development increased to 14 per cent from 6 per cent between the same years. DIAL’s non-aeronautical revenue share has remained relatively stable, averaging around 58 per cent in the last five years, and includes revenue streams like duty free, land and space rentals, advertisements, cargo, F&B, and retail.

“Since 2020, DIAL has been in the Base Airport Charges (BAC) framework, which is amongst the lowest across all airports in the world. This is the main reason for aeronautical revenue share to reduce. For reference, aero revenue has sharply dropped by 76 per cent over years from Rs 3,932 crore (FY17) to Rs 938 crore (FY23),” a DIAL executive told The Indian Express.

“Aeronautical revenue is directly collected as landing/parking charges from airlines and User Development Fees from passengers. This is a regulated revenue determined by the Airports Economic Regulatory Authority (AERA),” the executive explained.

The spokesperson said 30 per cent of DIAL’s non-aeronautical revenue “goes towards cross-subsidization of aeronautical charges which brings down the contribution of aeronautical charges further.” Without cross-subsidisation, airlines would have to pay airports much higher charges, especially for those operated under public-private partnerships, to meet their predetermined internal rate of return, which dictates the economic viability of setting up and operating airports.

In a similar trend, Mumbai’s Chhatrapati Shivaji Maharaj International Airport, operated by Mumbai International Airport Limited (MIAL), in which Adani Enterprises now holds a majority stake, also saw a drop in its aeronautical revenue share to 38 per cent in FY23 from 46 per cent in FY19 as its non-aeronautical revenue share jumped to 62 per cent from 54 per cent. In FY23, MIAL generated a total operating revenue of Rs 3,233 crore. As per Fitch Ratings, MIAL also uses 30 per cent of its non-aeronautical revenue for cross-subsidisation.

For both Delhi and Mumbai airports, user development fee (UDF), which is a charge levied on passengers and is included in their ticket price, forms a large chunk of aeronautical revenue. The approved rate of UDF for DIAL by the Airports Authority of India is Rs 200 for domestic passengers and Rs 1,300 for international passengers, whereas for MIAL it is Rs 100 for domestic passengers and Rs 600 for international passengers. In FY23, Delhi airport saw average monthly traffic of 5.44 million passengers whereas Mumbai airport saw 3.66 million passengers.

DMRC’s traffic revenue share fell to 39 per cent in FY22 from 55 per cent in FY19, while the share of external project income in total operating revenue jumped to 48 per cent from 35 per cent in the same time period. DMRC has executed external projects for Jaipur Metro Rail Corporation Limited, Kochi Metro Rail Limited, Mumbai Metropolitan Region Development Authority, Patna Metro Rail Corporation Limited, among others. It is also seeking to undertake construction and consultation projects across the world including in Israel’s Tel Aviv, Egypt’s Alexandria, and Vietnam’s Ho Chi Minh City.

Being India’s pioneering metro project, DMRC earned an average of Rs 45 crore every year between FY19 and FY22 by rendering consultancy and training services to various domestic metro projects in cities like Noida, Mumbai, and Jaipur, and to metro projects in other countries, like in Dhaka. In FY22, DMRC also raked in nearly Rs 500 crore through rental and lease earnings, which was slightly lesser than Rs 559 crore in FY19.

When DMRC started out, it was inspired by Hong Kong’s Mass Transit Railway (MTR), at the time one of the few profitable mass transit operations in the world, to focus on expanding non-traffic revenue for better margins. MTR’s focus on non-traffic revenue continues to date– in 2022, it generated HK$13 billion from transport operations compared to HK$30 billion from property rental and management businesses.

DMRC did not respond to a detailed questionnaire.

In comparison, Hyderabad Metro, operated by L&T Metro Rail Limited, which started operations exactly six years ago in November 2017, has expanded the share of its traffic revenue to 68 per cent in FY23 from 53 per cent in FY19. Over six years, Hyderabad Metro has launched three lines which has significantly boosted ridership and increased traffic revenue. Increase in ridership has also allowed Hyderabad Metro to generate more advertisement revenue, to Rs 67 crore in FY23 from Rs 30 crore in FY19. In FY23, Hyderabad Metro’s total operating revenue stood at Rs 677 crore. Hyderabad Metro did not respond when sought for comments.

IRCTC recorded a major jump in e-ticketing revenue post the Covid pandemic. In FY22, revenue from e-ticketing increased to Rs 1,020 crore, the highest at the time compared to previous years, from Rs 449 crore in FY21 and Rs 620 crore in FY20. In FY23, IRCTC’s e-ticketing revenue stood at Rs 1,198 crore and accounted for 80 per cent of total net profit, eclipsing IRCTC’s net profit from core revenue streams including catering, Rail Neer, and tourism services.