www.bechtel.com

The Future of Airport Growth
by Omran Assa and James Denton-Brown – Bechtel Aviation

All world regions have experienced strong growth in air travel over the last five years. Boeing predicts world annual economic growth to average 3.1% over the next 20 years while passenger air traffic will grow even faster at 5.0% and cargo at an astonishing 6.1%.

North America continues to be the largest single aviation market, followed closely by Europe. Traffic has fully recovered from the impacts of 9-11 and once again North American and European airports are facing the need for urgent expansion of runways and terminals. However, environmental opposition to expansion is greatly complicating the ability of these airports to deliver needed facilities. Heathrow and its decades long effort to gain planning approval for a third runway is a clear example of the difficulty and controversy involved in major airport expansion in the western world.

Paralleling aviation growth in the industrialized countries, there has been dramatic growth in the emerging market countries. Over the last 10 years, China, India, and the Middle East have emerged as growth engines and achieved unprecedented economic growth rates, wealth creation, and increase in air travel demand. In China, growth is led by government investment and economic expansion created by manufacturing and exports. India is led by private-public partnerships, government liberalization, and hi-technology industries. The Middle East is led by government investment in infrastructure funded by oil and gas revenues. Although each of the three emerging regions is distinct, they all share one common feature: the ability to respond aggressively to aviation demand and to build airport facilities quickly on a massive scale. While the developed nations struggle with incremental airport expansion, China, India and the Middle East are building major new facilities that are shifting the future of aviation from West to East.

CHINA

The rate of growth in China for 2007 was 10.4%. By year 2025, it is projected that China’s economy will be the 2nd largest in the world, up from 11th just ten years ago. China’s stellar growth has been steered by strong government policy with a focus on infrastructure investment as the basis for economic success.

Airports are now a primary emphasis of this investment strategy. Over the next 10 years, China plans to invest up to $64 billion in its domestic and international airports, including numerous upgrades and 97 new airports. This investment will expand gateways at Beijing, Shanghai, Shenzhen, Kunming, Guangzhou, and Nanjing and will increase the number of airports in China to 244 by year 2020.

Two recent projects illustrate the speed with which major expansion can be accomplished in China’s planned economy. In just about five years from the initial concept, the new Terminal 3 at Beijing International Airport was opened in March 2008 in advance of the 2008 Olympic Games. This facility, the world’s largest single airport terminal, raises capacity at the airport from 53 to 76 million passengers a year. Similarly, Terminal 2 at Shanghai Pudong International Airport will open for passengers in 2008, increasing annual passenger capacity from 20 to 60 million.

According to Boeing and Airbus, one tenth of new aircraft deliveries will go to China over the next 20 years. The expanded aircraft fleet and increased airport capacity will enable China to be globally competitive and become the central player in the fast growing intra-Asia aviation market.

INDIA

The Indian economy has witnessed rapid growth since reforms began in 1990. GDP expansion in 2007 was 8.4%. Driven by rapid expansion in the services sector and the high technology areas of software and computers, India is now the 10th largest economy in the world and is projected to become the 5th largest in 20 years.

Infrastructure development is a major factor in sustaining economic growth. The current five-year investment plan earmarks approximately $6.7 billion for airport development. Upgrades are ongoing at Delhi and Mumbai airports to enable each to serve 40 million annual passengers by 2010. Construction of the first phase of the new greenfield airports at Bangalore and Hyderabad is nearing completion. Two new airports at Navi Mumbai and Goa were recently confirmed. As many as 35 non-metro airports are also being improved and expanded.

While growth in China is orchestrated by a planned economy, India is utilizing innovative public-private partnerships as stimulus to timely implementation of airport projects. The public partner is the Airport Authority of India (AAI) who is the regulatory authority and investment partner in the privatizations of Delhi, Mumbai, Hyderabad and Bangalore. The private partners encompass financial institutions, industrial corporations and foreign airport operators lured by prospects of growth in traffic demands and Government financial incentives, such as tax holidays and grants. Some experts estimate that the private sector will account for 60% of the required investment.

MIDDLE EAST

The six GCC countries are the main driver of the Middle East economy due to vast oil and gas reserves. They grew 8% in 2007 and are experiencing an economic boom not seen since the early 1980s. To lessen the reliance on oil and gas, investment through sovereign wealth funds and government-linked companies is fueling the implementation of business, real estate, tourism, and transportation projects primarily by Dubai, Abu Dhabi, and Qatar.

The Gulf region is witnessing the most robust growth for airlines and airports in the world. Gulf States have the vision, deep pockets, and form of government to enable them to quickly expand their national airlines and build new airports. They see themselves as the new global transportation center connecting east and west and giving serious competition to European hubs that are not able to implement capacity enhancements quickly. They also have a natural geographic advantage with a central location between Europe, Asia, Africa and the CIS and within 5 hours flight of 2 billion people. With the delivery of the A380s and B777 long range aircraft, airlines from the Gulf States will be able to reach any location on earth with a non-stop flight.

Leading the way for airlines are Emirates, Qatar Airways, and Itihad Airways, and to a lesser extent Gulf Air. Massive new airports or airport expansions are underway in the UAE, Saudi Arabia, Qatar, Kuwait, Oman, and Bahrain with a total investment projected to exceed $45 billion. Many question whether this much capacity, possibly 200 million annual passengers by 2015, is commercially justified. Time will tell, but certainly global east-west traffic needs geographically well-positioned hubs to serve new and growing routes. Those who can provide capacity promptly and at commercially competitive rates will succeed, just as very large hubs in the United States or Europe have done.

CONCLUSION

The ability of China, India and the Middle East to rapidly build major new airports and to expand existing airport facilities has allowed them to meet the dramatic increase in passenger traffic generated by their successful economies. In contrast, the developed countries of North America and Europe will be faced with the need for airport expansion but will find it increasingly difficult and complex to achieve. Given these conditions, over the next 20 years, it is almost inevitable that the focus of aviation and the future of airport growth will continue to shift from the developed countries of the West to the dynamic emerging countries of the East.

About authors:

Omran Assa is Vice President and Global Business Development Manager for Bechtel Aviation. He has 25 years of experience in positions of major responsibility on airport and transportation projects.

Jim Denton-Brown is Manager of Planning for Bechtel Aviation. He has more than 25 years experience on projects around the world.

www.bechtel.com

 

Click here to obtain a copy of AIRPORT 2010