What Delhi airport can learn from Uber

Delhi airport was privatised by the Manmohan Singh-led UPA government in 2006. After which, the airport’s services and passenger experience improved drastically. Why has the chaos then returned? Isn’t privatisation supposed to be the antidote to poor government service standards?

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After privatisation, growing traffic can no longer be an excuse for infrastructure deficit. Private managements are in vastly better positions than government to anticipate growth and act in a timely way for rolling out airport expansions required.

The problem at Delhi airport actually isn’t so much of traffic exceeding airport capacity. It is actually a case of bunching of flights at peak hours, and less than optimum use of the airport during non-peak hours. Travelers prefer peak-hour flights. Therefore, airlines prefer flight slots in the busy hours when air seats are more profitable because of the supply-demand of seats versus passengers.

A scramble for select flying slots in these hours seems deceptively like a case of airport congestion but is actually a policy issue. What it calls for is a non-peak-hours market to be developed. The nature of the airline market is such that it will not be able to deliver this by itself. The air traffic regulator, the airport manager, the government and the airlines will have to work together.

To decongest the airport at the peak hours, policy will have to ensure traffic is smoothened out through the day by shifting some flights from busy hours to non-peak hours. For the passenger inconvenience to reduce, airlines must add seats on the non-peak hours. These seats must be available at prices that would incentivise non-peak hour flying habits among travellers. Airlines won’t do it on their own, as peak-time seats are more profitable and they’d like to recoup their pandemic-time losses. As things stand, the incentive of the airlines is to carry on with current flight schedules.

But designing the right incentives can change behaviours by making it viable for airlines to fly in non-peak hours. Microeconomics has tools such as differential (or concessional) pricing that can be used for airport parking slots for aircraft, air traffic control and navigation services charges, runway use charges, etc. to incentivise flights in non-peak hours. Airlines, in turn, can develop non-peak-hour market using differential pricing for seats in these hours to change passenger preferences and consumption behaviour. Price discrimination involves setting tailored prices for the same good.

Simply incentivising non-peak-hour flying may not suffice. In the busy hours, the airport authorities may have to use surge pricing – the concept that makes the cost of Uber rides go up in office hours or whenever demand spikes – for air traffic service charges, aircraft landing and parking slots. Airlines can use it for seat prices in those hours.

By raising the price of using airport and navigation services, their use can be rationed. However, the response expected from airlines is for them to shift flights to lean hours, and not merely increase ticket prices for passengers. The airport authorities and the regulator would, of course, have to work with the airlines so that passengers aren’t penalised by profit-chasing airlines, drawing complaints of gouging.

We fly to save time and make the travel experience stress-free. Flyers will have to recognise that by spending longer hours in airport queues, we are paying in time, rather than in rupees, and this has already made flying more expensive in non-monetary terms.

All the same, it will have to be seen that the airport and air traffic control and navigation services don’t turn loss-making or don’t end up having to subsidise the airlines in the non-peak hours. Hence, the role of government in achieving the outcomes required. Privatisation doesn’t mean policy has no role. Rather, it changes to healthy regulation.

Major airports in the world were decongested using a mix of incentives and other policies encouraging non-peak-hour flights and use of smaller, newer, less popular airports by both airlines and flyers. Besides Heathrow, London has five other airports: Gatwick, Stansted, Luton, London City Airport and Southend. They are all connected by public transport so that connecting flights and transits are smooth. And, just a few months ago, Heathrow reduced peak-hours flights slots to decongest the airport, forcing airlines to cancel flights — something Emirates, for instance, was hugely annoyed about but had to comply with.

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