'Economic regulations is key to avoiding an asset bubble'

Bangalore: As India throws open its airports, it should enact economic regulations that are neither liberal nor too restrictive, said experts at an aviation seminar in Bangalore last week. Regulations can also help in preventing the "tears" and disruption of a boom and bust cycle in airport assets that are driven by higher valuations.
"Economic regulation is in the interest of consumers and airlines. It is also of direct value to the airports and their investors as a means of providing long-term stability," said Peter Bysouth, Assistant Director (Airport and ATC Charge) with International Air Transport Association while presenting a paper at the seminar.
The airline industry has always sought regulation of natural monopolies such as airports and air navigation service providers (they can be independent from the airports in other countries) but airports have actively resisted regulations arguing that they are reasonable managers with a reasonable outlook for returns.
While recent privatisation has brought further efficiencies, it has also brought unrelenting pressure for increased aeronautical charges and profits, especially among listed assets that are constantly chasing quarter returns, said Bysouth.
Economic regulations are critical as airports are natural monopolies, and there's no effective competition for India's airports. Plus, there's a government fiat, which says that new "greenfield" airports will not create competition for the incumbents. Therefore, it is important to ensure effective regulation of airports to ensure a fair outcome to all stakeholders — airlines, travellers, government, shippers and public.
Indeed, this is not the first time India has embarked on civil aviation liberalisation. In the early 1990s, a similar exercise ended in "tears" as unrestrained growth led to a boom and bust cycle. The subsequent "instability" has held up investment and progress for a decade, causing India to lag behind other countries.
11/12/07 Ranju Sarkar/Hindustan Times

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Categories: airports feb 2007, General Aviation feb 2007