Key Takeaways
- The Airport Viability Equation is not about passenger volume, but passenger *value*. The current model, heavily reliant on low-yield labor traffic to the Gulf, is fundamentally incapable of servicing the high-cost debt of Pokhara and Bhairahawa. A strategic pivot to high-yield tourism and business travelers is not an option, but a mathematical necessity.
- The “Hub vs. Point-to-Point” debate is a dangerous distraction for Nepal. The nation lacks the geography, market size, and carrier base to be a transit hub like Dubai. The only viable path is a “Niche Gateway” model, marketing each new airport as a direct, premium entry point for a specific, high-value tourism product (e.g., adventure tourism for Pokhara, Buddhist pilgrimage for Bhairahawa).
- The primary obstacle is not infrastructure, but policy inertia. The true bottleneck is Nepal’s archaic Bilateral Air Service Agreements (BASAs) and a protectionist mindset designed to shield a struggling national carrier. Without radical liberalization of skies for specific, targeted routes, these multi-million dollar assets will remain hostages to outdated regulations.
Introduction
In the shadow of the Annapurnas, Pokhara Regional International Airport (PRIA) gleams—a $216 million testament to modern engineering and national ambition. Less than 200 kilometers away, Gautam Buddha International Airport (GBIA) in Bhairahawa stands as another formidable gateway, built to welcome millions to the birthplace of Lord Buddha. Together, they represent a monumental investment in Nepal’s future. Yet, beneath the sheen of their new runways lies a ticking financial time bomb, a debt trap that threatens to turn these symbols of progress into colossal white elephants by 2026. At the heart of this crisis is a stark disconnect: 21st-century infrastructure shackled to a 20th-century aviation strategy.
This is not a story about construction delays or operational readiness. It is a critical analysis of financial viability, a deep dive into the urgent mathematics of survival for these national assets. The core of the problem is the heavy reliance on Chinese debt, particularly for Pokhara, and the alarming failure to secure the international air traffic needed to service it. The comfortable routes to India and the Gulf, dominated by labor and VFR (Visiting Friends and Relatives) traffic, generate nowhere near the revenue required. The challenge is clear: can Nepal pivot its aviation strategy fast enough to attract high-yield international airlines beyond its immediate neighbors, or will these airports become case studies in poor economic planning? The answer hinges on a crucial strategic choice between the much-debated “Hub Model” and a more pragmatic “Point-to-Point” approach, a decision that will define Nepal’s economic trajectory for the next decade.
The Anatomy of a Debt Trap: Pokhara’s $216M Question
To understand the precarious position of Nepal’s new airports, one must first dissect the nature of their financing. The financial structures of GBIA and PRIA are worlds apart, and this difference is the root of the current crisis. Bhairahawa’s GBIA was largely financed through a soft loan from the Asian Development Bank (ADB), characterized by a low interest rate (around 1-1.5%) and a long grace period. This is standard development financing, designed to give a project time to mature and generate revenue before repayment pressures mount. It is manageable debt.
Pokhara’s PRIA, in contrast, was financed by a $216 million loan from the China EXIM Bank. This loan is fundamentally different. While exact terms are opaque, it is understood to be a commercial-rate loan with a much higher interest rate, estimated at 2%, and a shorter repayment window. A quarter of this amount is a grant, but the remainder is hard debt. This is not development aid; it is a commercial transaction. A 2% interest on the loan portion of roughly $162 million translates to an annual interest payment of over $3.2 million, before even touching the principal. To put this in perspective, the Civil Aviation Authority of Nepal (CAAN), which operates all of Nepal’s airports, reported a net profit of around $7 million in the fiscal year before the pandemic devastated travel. This means the interest payment for a single, underutilized airport could consume nearly half of the entire national aviation authority’s historical profits. This is the definition of a debt trap.
The core economic miscalculation was treating a commercial loan as a tool for public infrastructure in a sector with unproven demand. Unlike a hydropower project with a guaranteed Power Purchase Agreement (PPA), an airport’s revenue is speculative. It depends entirely on passenger and flight volumes that do not yet exist for PRIA. The loan agreement reportedly stipulates that revenue from the airport must be used to service the debt, but with only a handful of chartered international flights and minimal domestic operations, PRIA’s revenue is negligible. Estimates suggest PRIA needs to handle at least one million international passengers annually just to approach operational break-even, let alone service its debt. In 2023, it handled virtually zero scheduled international passengers. This isn’t just a slow start; it’s a financial emergency unfolding in slow motion.
The Air Traffic Paradox: Why More Flights Don’t Mean More Profit
The common refrain from officials is the need for “more international flights.” This statement, while true, dangerously oversimplifies the problem. The critical distinction is not the *quantity* of flights but the *quality* of the revenue they generate. Nepal’s current international air traffic is overwhelmingly concentrated at its main hub, Tribhuvan International Airport (TIA) in Kathmandu, and is dominated by two specific segments: migrant workers flying to the Gulf and Malaysia, and traffic to and from India.
This traffic profile is characterized by low yield. “Yield,” in airline terminology, is the average revenue earned per passenger-kilometer. Flights carrying labor traffic are typically filled by recruiting agencies that negotiate bulk fares, driving down the price per seat. Similarly, while VFR traffic is significant, it is highly price-sensitive. These are not the passengers who buy business class tickets, pay for extra baggage, or spend extravagantly at airport retail. While this traffic keeps load factors high, it does not provide the profit margins necessary to support the high fixed costs of a modern airport, let alone repay a commercial loan.
This is where the strategic challenge for GBIA and PRIA becomes apparent. For GBIA to be viable, it cannot simply be an alternative for Gulf-bound workers from Nepal’s western provinces. It must capture a new, high-yield market: international Buddhist pilgrims. A flight from Colombo or Bangkok carrying tourists on a multi-day pilgrimage to Lumbini generates exponentially more value—through visa fees, hotel stays, local transport, and tourism activities—than a flight carrying low-wage workers. However, attracting airlines like SriLankan Airlines or Thai Airways requires more than just an airport; it requires a compelling business case, route development funds, and, most importantly, relaxed air service agreements.
The situation for Pokhara is even more acute. Its primary value proposition is as a direct gateway for high-end adventure and leisure tourists, bypassing the congestion of Kathmandu. The target market is not Doha; it is Shanghai, Seoul, or even European cities. These tourists have higher spending power and demand the convenience of direct flights. The failure to secure even a single scheduled flight from China, the country that financed the airport, is a catastrophic market failure. The obstacle is multi-layered: Indian reluctance to grant new air entry points over its territory for flights heading to Pokhara limits access from the west and south, while Nepal’s own restrictive aviation policies deter potential carriers from the east.
Hub vs. Point-to-Point: A Misguided Debate for Nepal
Much of the strategic discussion within Nepal’s aviation circles is framed as a binary choice: should Nepal position itself as a “Hub” or focus on “Point-to-Point” (P2P) traffic? This debate is fundamentally flawed because it misinterprets Nepal’s geographic and market reality. A “Hub-and-Spoke” model, perfected by carriers like Emirates in Dubai or Singapore Airlines in Singapore, relies on consolidating long-haul traffic at a central airport and distributing it to regional destinations. The success of a hub depends on geographic centrality, a massive home carrier, liberal air policies (Open Skies), and seamless transit infrastructure. Nepal has none of these.
Nepal is not geographically positioned to be a bridge between East and West or North and South. It is shadowed by the colossal hubs of Delhi, Dubai, and Doha. Nepal Airlines, the national flag carrier, has a small fleet and lacks the network to sustain a hub operation. Furthermore, a true hub model requires sixth-freedom rights, the right to carry traffic between two foreign countries via a stop in one’s own country. While Nepal technically allows this, it lacks the market gravity to attract such traffic from powerful competitors.
Conversely, a pure “Point-to-Point” model, favored by low-cost carriers (LCCs), connects two cities directly based on existing demand. While this is more realistic for Nepal, relying solely on existing O&D (Origin and Destination) demand is insufficient to make PRIA and GBIA viable. The existing P2P demand is for the low-yield labor routes already discussed. Building a business case for new, high-yield P2P routes from scratch is the real challenge.
The only viable strategy is a hybrid I call the “Niche Gateway” model. This is a highly targeted P2P strategy that abandons the grand illusion of becoming a major hub. Instead, it markets each airport as a specialized gateway to a unique, world-class product. GBIA should be positioned as the *sole* international gateway for the Buddhist Circuit, with policy and marketing efforts laser-focused on attracting carriers from Buddhist-majority nations like Thailand, Sri Lanka, Myanmar, Vietnam, and South Korea. This means CAAN must proactively approach these countries with pre-negotiated, highly liberal BASAs that offer incentives like reduced landing and navigation fees for the first few years of operation at GBIA.
Similarly, PRIA should be marketed as the “Annapurna Gateway,” a premium entry point for adventure tourists. The target should be securing direct P2P connectivity with secondary cities in China (Chengdu, Kunming), South Korea, and Japan. This strategy emulates the success of smaller, specialized airports globally. Bhutan’s Paro airport, for instance, doesn’t try to compete with Delhi; it serves as an exclusive, high-value gateway to a unique destination, a strategy that has preserved both its culture and its profitability. Nepal must learn this lesson: do not try to be everything to everyone. Be the best and only direct entry point for a specific, high-value experience.
The Strategic Outlook
As we look towards 2026, the year when repayment pressures will become critical, Nepal’s aviation sector faces a clear fork in the road. The trajectory will be determined not by construction timelines, but by decisive policy action in the next 12-18 months. Three distinct scenarios emerge:
Scenario A: The White Elephant. In this future, the status quo prevails. The government continues to plead with international airlines while failing to reform the underlying policy constraints. Bilateral Air Service Agreements remain restrictive, protecting the interests of the national carrier over the viability of national assets. India does not grant new air routes. PRIA and GBIA accumulate massive operational losses, defaulting on their loan repayments. The Chinese loan for PRIA could trigger sovereign credit implications, and the airports become potent symbols of squandered potential, beautiful but empty terminals servicing a trickle of domestic flights.
Scenario B: The Slow Bleed. A more likely, but still suboptimal, outcome involves incremental progress. GBIA manages to attract one or two LCCs from Southeast Asia, creating a small but dedicated stream of pilgrim traffic. PRIA secures a few seasonal charter flights from China. This generates some revenue, but it is far from sufficient to cover operational costs and debt servicing. The airports survive on life support, requiring continuous cash injections from the CAAN, draining resources that could be used for upgrading other domestic airports. The airports are not complete failures, but they operate as heavily subsidized, underperforming assets, a persistent drag on the national exchequer.
Scenario C: The Strategic Pivot. This is the path to solvency. The government, recognizing the urgency, forms a high-powered Route Development and Aviation Policy Task Force. This body is empowered to unilaterally grant traffic rights to PRIA and GBIA for specific, targeted markets for a limited period (e.g., 5-7 years) outside the traditional BASA framework. It offers aggressive, time-bound incentives for the first three airlines to start scheduled service to each airport from non-Gulf, non-India destinations. Diplomatic efforts become laser-focused on resolving the air route issue with India. This policy shift sends a powerful signal to the global aviation market that Nepal is truly open for a new kind of business. By 2026, both airports are servicing a growing number of direct flights from East and Southeast Asia, capturing the high-yield tourist markets they were designed for, and a clear path to profitability is established.
The Hard Truth: The “build it and they will come” strategy has failed. Infrastructure does not automatically create demand; it can only service it. The debt for Pokhara is not a distant problem; it is a clear and present danger to Nepal’s economic sovereignty. The solution does not lie in more feasibility studies or diplomatic pleasantries. It requires a brutally honest assessment of past failures and the political courage to dismantle the protectionist policies that have kept Nepal’s skies partially closed. The choice is between protecting a single airline or saving two billion-dollar national assets. The clock is ticking.
