The Centre for Asia Pacific Aviation (CAPA) predicts Asia Pacific airports will be the key beneficiaries of the predicted surge in airline capacity and entrants in 2007 and beyond, according to its new Aviation Outlook report.

"But major challenges face the airport sector in Asia, among them, the provision of enough capacity, funding development, and matching appropriate facilities to a rapidly segmenting airline sector. Strong predicted traffic growth will exacerbate capacity shortages at many Asia Pacific airports in the years ahead and a determined approach to developing fresh capacity is vital", said Executive Chairman of the Centre for Asia Pacific Aviation, Peter Harbison.

Asia is expected to lead global passenger growth, with 5.8% annual average growth predicted over the next 20 years, including 7.9% annual growth over the next five years and 8.6% growth in 2007, according to Airports Council International.

Asia will overtake North America by 2025 as the world's largest aviation market (in both passenger and freight segments). India and China are set to be the two fastest growing countries in the world with 10.4% and 8.1% growth respectively, led by large increases in domestic traffic, over the next 20 years.

"But some of Asia's leading airports are operating close to or beyond design capacity, due to continued strong traffic demand. The capacity shortages run the risk of undermining hub competitiveness, not to mention inconvenience to passengers. Airport congestion is also a major factor in costly added fuel burn for airlines at a time when environmental concerns are beginning to match cost factors", said Mr Harbison.

The problems are most severe at airports serving the fast-growing emerging markets, including China, India, Indonesia and Vietnam, according to the Outlook report. The problems are not confined to infrastructure at airports. Urgent attention is needed to relieve air traffic congestion in traffic hotspots, including the Pearl Delta and Yangtze River Delta regions in China.

Meanwhile, airports in Asia's secondary cities are on the cusp of rapid growth in demand and will quickly need to either expand or re-develop their facilities - creating another funding challenge.

The Centre predicts a surge in activity at the following key secondary cities across Asia Pacific in the next five years:

• Japan: Fukuoka, Miyazaki, Kobe and Kyoto, as well as Sapporo, Niigata, Nagano and Shizouka (Winter destinations);
• China: Wuhan, Kunming, Shenyang, Tianjin, Chengdu, Shenzhen, Hangzhou, Xian, Nanjing and Macau;
• South Korea: Busan and Jeju;
• Philippines: Clark and Cebu;
• Indonesia: Medan, Surabaya and Yogyakarta;
• Vietnam: Da Nang;
• India: Bangalore, Hyderabad, Ahmedabad, Chennai, Cochin, Amritsar, Goa, Pune and Jaipur;
• Pakistan: Islamabad and Lahore;
• Bangladesh: Chittagong;
• Australia: Avalon (Melbourne) and Bankstown (Sydney).

"The increasing trend for airport privatisation has provided some fresh potential funding sources, but pressure will continue on airports to enhance revenues from charges (putting them into potential conflict with airlines) and commercial sources to help fund the required capacity expansion", said Mr Harbison.

The Centre estimates the 60 leading (active and potential) global airport investors have a combined pool of approximately US$50 billion ready to invest. The global airport privatisation pipeline is valued at up to US$40 billion - so competition will intensify in the sector.

2006 was a bumper year for airport transactions, with 15 major airports/airport groups privatised worldwide - or more than one a month. It was the second highest number since 1998, when 21 transactions occurred.

The activity looks set to continue in 2007, although a greater emphasis on secondary trade sales than first-time privatisations is likely. In Australia, Ferrovial is preparing to offload BAA's Australian airport interests (including in Melbourne, Perth, Darwin, Alice Springs and Launceston) to raise funds to retire debt.

Meanwhile, Asia's leading government-owned airport operators, Singapore Changi, Airport Authority Hong Kong (AAHK), Beijing Capital International Airport (BCIA) and Malaysia Airports Holding Berhad (MAHB) (the latter two are partially listed), are also poised to play a vital role in the development of Asian airports.

"By 2015, all four groups will have developed significant airport systems, rivalling the leading global players, including BAA, Schiphol, Hochtief, AdP, YVRAS and others", said Mr Harbison.

AAHK and BCIA will utilise their local knowledge to develop strong portfolios of airports in Mainland China, while Changi and MAHB meanwhile will have a wider geographical focus, taking advantage of emerging market opportunities in India, the Middle East, China and Russia (Central Asia), according to the report.

"For all four groups, investing outside their principal hubs is a vital strategy to capture revenue growth opportunities driven by new entrants and emerging airline models, including LCCs and hybrids, that they may not otherwise be exposed to", concluded Mr Harbison.