Traditional revenue pools of transportation assets are drying up due to increased competition within and across modes, deteriorating overall macro-economic environment, and negative public response to rising charges.
By- Neetu Vasanta & Suresh Subudhi
Traditional revenue pools of transportation assets are drying up due to increased competition within and across modes, deteriorating overall macro-economic environment, and negative public response to rising charges. Asset owners world-wide, are augmenting core revenue sources such as ticketing and passenger chargers with ancillary streams for enhanced monetisation of their existing assets. Additionally, many asset owners are forging innovative partnerships across modes to extract higher returns.
In the wake of traditional revenue pools drying up here are a few key opportunities.
Boosting revenues through changing value proposition: Airports have boosted their value proposition with around 40% of overall revenue credited to non-aviation sources. While aviation charges are still an important revenue source, they are no longer the nucleus. Non-aviation activity has left airport operators with more creativity to generate additional revenue. Singapore’s Changi Airport is considered a world leader. In 2016, it earned $1.5 billion from sales at airport shops. It also offers theme gardens, jacuzzis, movie theaters, etc, providing travellers a five-star experience. Ratings agency ICRA has forecasted that non-aviation revenues at Indian airports will grow by 16.6% to reach Rs 16,150 crore by 2025.
According to a World Economic Forum and BCG report, transport asset owners could generate as much as 10-30% of overall revenue from ancillary sources.
Innovate across customer journey to augment offering: Globally, leading asset owners are extracting additional revenue from core assets by tailoring their offerings to unmet customer needs. For example, Japanese railways company JR-East generates over 30% revenues via offerings ranging from retail to office buildings. Digital advancements have also enabled provision of targeted offerings for various modes of transport. Seoul Metro, for example, has boosted retail revenues for subways in South Korea through “virtual” Tesco outlets with digital product display and home deliveries. The innovation encourages people to shop while they wait for trains. Some leading ports are also exploring digital avenues for revenue enhancement at terminals. Singapore port, for instance, has introduced a booking and subscription fee associated with electronic fleet management of cargo trucks. Some recently modernised leading airports like CSIA airport in Mumbai launched India’s most advanced airport navigation app supported through iBeacon technology and augmented reality. The app helps passengers with interactive navigation assistance, allows one to look up any section store or restaurant with just one click and enables passengers to receive information with regards to their flight.
Explore Value-Creating Partnerships: Asset owners are increasingly expanding their offerings for customers and other industry players. Railways is set to introduce on-board entertainment facilities which can be accessed via a smartphone or a laptop, with an estimated market potential of Rs 23 billion. Deutche Bahn, the largest rail company in Europe has launched an intermodal offering by way of bus and bike options for last mile connectivity beyond the railway station. Meanwhile, some owners have been leasing their core assets for adjacent business services. Railtel, a subsidiary of Indian Railways has built a broadband business on the rail infrastructure and is now leasing its assets to Google for high-speed Wi-Fi services. While the government of Gujarat GSECL and SunEdison have entered into a partnership to install solar panels along 19 km of the Narmada Canal to generate electricity. The project will generate 1MW clean energy per year, prevent evaporation of 9000KL of water without any additional land to set up. Following suit is the Maharashtra government which hopes to launch a 7.5MW solar power plant in Jalgaon in partnership with various private players to avoid land acquisition hassles.
It is easy to take a functional view of various transportation assets—be it airports, rail, highways or ports—but there is so much more opportunity. Asset owners must maximise the potential of their core assets in a manner that supports growth, improves customer satisfaction and also creates opportunities for generating income.
Vasanta is Principal, The Boston Consulting Group, while Subudhi is partner & leads the infrastructure practice BCG (India)