Business Today

Un-fare Proposal

K.R. Balasubramanyam and Geetanjali Shukla         Print Edition: Apr 29, 2012

Civil Aviation Minister Ajit Singh told the Rajya Sabha on March 29 that Malaysian budget carrier AirAsia had suspended services to Delhi and Mumbai, citing, among other things, airport and handling costs at both international airports.

Since the airports passed on to private hands in January 2006, new levies collected from airlines and passengers have often sparked protests.

"Any increase in airport charges - and the amounts being talked about are substantial - is detrimental to the plans of carriers like AirAsia, for whom costs are critical to the operating model," says Suresh Nair, the airline's Regional Manager for India, Sri Lanka and Bangladesh.

It may be India's loss, too. In January 2011, AirAsia pulled out of Hyderabad after the GMR Group-promoted airport jacked up charges.

Delhi's trophy Terminal 3 comes at a cost to users.

The 774 per cent increase in charges that Delhi International Airport (DIAL) has asked from the regulator, the Airports Economic Regulatory Authority (AERA), would work out to between Rs 700 and Rs 800 per passenger. AERA suggested a 334 per cent increase, which is about Rs 350 to Rs 450 per passenger.

AERA is expected to pass the final order on tariffs this month. Meanwhile, Mumbai International Airport (MIAL), in which Hyderabadbased GVK Group holds a 50.5 per cent stake, wants an airport development fee of Rs 100 for domestic passengers and Rs 600 for international ones.

Delhi airport, in which the Bangalore-based GMR Group holds a 54 per cent stake, is hurting. It reported net losses of Rs 450 crore in 2010/11, and its losses in 2011/12 are estimated at some Rs 930 crore. Many in the airline industry say the cause for losses is that the airport operator has to share 46 per cent of gross revenues with the Airports Authority of India (AAI). DIAL says its loss is Rs 50 crore a month.



Air Passengers Association of India (APAI) founder D. Sudhakara Reddy says DIAL is making losses because the airport is underutilised. "It is built to carry nearly 52 million passengers a year, but carries only around 25 million," he says. "It should have been built over 10 years in a modular fashion. Why build 5.4 million square feet at once? It has escalated their cost."

Justifying the tariff increase, Sidharath Kapur, Chief Financial Officer - Airports, GMR Group, says: "In India, aeronautical charges have not increased for the past 10 years, except for a 10 per cent increase in 2009. The tariffs have not even been adjusted for inflation. They are among the world's lowest."

Quote

In india, aeronautical charges have not increased for the past 10 years, except for a 10% increase in 2009. They have not even been adjusted for inflation "

Sidharath Kapur

CFO - Airports, GMR Group

Tony Tyler, Director General of the International Air Transport Association (IATA), said ironically at the India Aviation 2012 conference in Hyderabad in March: "Such an increase in charges would certainly fit the Ministry of Tourism's 'Incredible India' description, but it will come with a fall in tourist arrivals and further damage to local and international airline connectivity."

IATA Assistant Director Malvyn Tan says that even a 334 per cent increase in charges would make Delhi the world's most expensive international airport for a Boeing 747-400, for example.

According to an official statement by Lufthansa, the only sustainable way to improve airport utilisation and revenues is to increase flight traffic, and not charges. International carriers say India risks pricing itself out of the market for regional aviation hubs in Asia.

AirAsia's Nair says other countries offer his airline incentives to increase the number of passengers it brings in. Indian low-cost carriers had also hoped to benefit from changes expected at Delhi airport.

For example, IndiGo and SpiceJet would operate international flights from Terminal 1B. But that has fallen through.

Deccan Charters Chairman G.R. Gopinath says that airports have gone from public sector monopolies to private sector oligopolies, though he concedes that old cow-sheds have given way to modern airports. "If the regulator decides the return on investment on a cost-plus basis, then where is the competition?"

Some in the aviation industry argue that AAI should settle for a lower share of revenue from Delhi airport, as a 46 per cent share is too steep. But this view has its critics.

"One must remember that AAI has to operate airports across the country that are not remunerative," says Amber Dubey, Director-Aviation at KPMG. "Plus, this may be construed as changing the rules of the game post-facto, in favour of the winning bidder."

Then there is the issue of DIAL not having taken into account revenues from joint ventures it entered into for non-aviation activities such as food counters, car rental and parking.

APAI's Reddy says: "There was no competitive bidding process. Revenue from these activities should also be considered while determining tariffs."

DIAL says the joint ventures are in compliance with bid documents.

Kapur says: "The revenue that concessionaires or the JV give to DIAL is used for cross-subsidising. It is not the entire revenue of the concessionaire or JV which is to be used to cross-subsidise."

Airport operators often use such revenue to cross-subsidise tariffs.

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