Setur contract crucial to GMR-led Sabiha Gökçen consortium

Powerful Indian conglomerate GMR Group, the lead member of the consortium that won a tender to manage Istanbul Sabiha Gökçen airport, has revealed that Setur Servis Turistik’s 20-year contract at the location will generate revenues equivalent to about 80% of the bid the consortium placed to manage the airport. The company predicts that the revenue from the contract—at over €1.5bn ($2.38bn)—plus a passenger service fee of €12 ($19) for international passengers and €3 ($4.76) for domestic travellers will cover the consortium’s €1.9bn ($3.01bn) bid.

 

Setur will also make a €10m ($15.9m) investment in stores at the airport, which will open a new integrated domestic and international terminal offering 4,500sq m (48,420sq ft) of duty-free space, including 1,2000sq m (12,912sq ft) in arrivals. The existing international terminal houses 324sq m (3,486sq ft) of duty-free space in departures and 71sq m (764sq ft) in arrivals. The new terminal is capable of handling 10m passengers each year, and the airport company expects passenger numbers to more than double by 2012, to 10.58m.

 

The existing domestic and international terminals at Sabiha Gökçen are expected to serve 4.7m passengers this year.

 

DFNIonline says: GMR’s claim that it has covered its bid price with its duty-free contract and passenger service fee shows just how important a role retail can play in the airport privatisation process. With the bid covered, the consortium can focus on maximising its own revenue through other commercial and aeronautical operations.

 

It also shows why long-term contracts are favourable to airport consortiums, giving them the ability to predict their revenue streams more accurately over a longer period of time, and to take this into account when preparing their bid. And for retailers, the benefits of a long-term contract are clear—greater time to recoup investment leads to bigger investments in stores and staff, and the freedom to hone a retail offer over 20 years based on

 

One challenge the company will have to overcome is making its aeronautical operations profitable. Low-cost carriers, which will undoubtedly be the focus of the airport’s route development planning, are very demanding on price, and with the consortium also trying to make money from aeronautical charges, it will have to structure its terms cleverly to leave room for its own margin. In this respect traditional airport authorities have an advantage over airports privatised in this manner—they can drive profit through their commercial operations while focusing on providing the low cost structure that low-cost carriers demand.