23 Dec Private Investors in Aviation are Essential to Accommodate Future Growth in Asia
According to Boeing’s Current Market Outlook: “Asia has become one of the biggest aviation markets in the world—at last count, a billion passengers travel to, from, or within the region each year. And more than 100 million new passengers are projected to enter the market annually for the foreseeable future.” The figures are astounding. In South-East Asia alone, with a compounded annual growth rate of close to 10% in the last 5 years and a rising middle class, the demand for air travel will continue to grow. The region has become one of the commercial aviation’s strongest growth regions, where airline capacity has risen 80% since 2009. To accommodate this growth, investments in airport infrastructure are essential. Governments in the region need to plan and act to allow their economies to capture the growth brought by increased air travel demand.
This is not an easy task. Various factors impede the pace of airport infrastructure development, these range from geopolitical issues to lack of human capital and/or funding. In Indonesia: a staggering 15 billion is required for airport development between 2015-2019, when only 2.6 billion was invested in 2009 to 2014. “It’s impossible for government to carry this out on its own”, according to Bastary P. Indra, the director for public-private partnership development of the Indonesian National Development Planning Agency (JakartaGlobe). Private capital is necessary to supplement the lack of public funding. While capital city and gateway airports are attractive to investors, there remains large numbers of secondary and tertiary airports in lesser developed catchments which have difficulty attracting private investments because of their lack of scale and profitability.
How to make small airports attractive to private investors?
It is necessary to identify and appeal to the right type of investors who have the risk appetite for smaller airports which have substantial development needs. To address the issue of scale, a potential solution would be to reach out to investors which view these small airports as part of a portfolio of assets, rather than as a standalone opportunity:
- Bundling of smaller airports with operational and larger ones during a privatisation process allows the smaller airport in the portfolio to tag onto the scale economies of the large airport. Returns from the larger airport can also be reinvested into the portfolio.
- Diversified conglomerates who are invested in other assets in the region e.g. commodities, real estate etc. are prime candidates who see the airport as a gateway to the region, that is worth investing in to increase the value of its other assets.
It is possible to match the demand for returns of private capital with the need for development of social infrastructure, hence allowing aviation in Asia to grow to its full potential and Asian economies to capture the value from aviation. In the meantime, existing airport infrastructure in Asia should be optimised like we’ve discussed in our blog regarding the European situation.
About To70. To70 is one of the world’s leading aviation consultancies, founded in the Netherlands with offices in Europe, Australia, Asia, and Latin America. To70 believes that society’s growing demand for transport and mobility can be met in a safe, efficient, environmentally friendly and economically viable manner.