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Small airports keep tariffs low to stay competitive

Chandigarh, Trivandrum have gone for lower user taxes despite being allowed higher price cap by Aera, else they may lose the advantage to major metro airports

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While some major airports like Mumbai and Delhi have in past asked for high airport user taxes/tariff citing cost overruns and increasing expenditure, some of the smaller airports like Chandigarh and Trivandrum have gone for lower user taxes despite being allowed higher price cap by the Airports Economic Regulatory Authority of India (Aera).

The reason: these smaller airports believe that they will lose the advantage to major metro airports if they increase the price.

According to S Machendranathan, chairperson, Airports Economic Regulatory Authority of India (Aera), there have been instances where airports have kept the taxes/charges lower than the cap to remain competitive or for passenger convenience.

Aera determines the aeronautical tariffs for services provided at major airports, including landing, parking and housing of aircraft, as well as the user development fee.

Giving an example, Machendranathan said Chandigarh airport was given a higher cap for the airport user tax. “But the management decided against applying it as that would have made them less attractive as against the Delhi airport which is not very far away,”

Machendranathan said during a panel discussion recently held in Mumbai to discuss ways of enhancing public-private partnership (PPP) in the aviation industry in India. The summit was organised by Indian Merchant Chambers and Chambers of Commerce and Industry.

“As far as shortfall is concerned, they said they could make up for it later,” he said.

Machendranathan said Trivandrum airport was also allotted a slightly higher tariff recently. “But then they said no. Their decision was based on the consideration that most of the passengers travelling on international flights from there come from middle and working class. So increasing the taxes on a higher side will cause a lot of inconvenience to them.”

Machendranathan reiterated that Aera does not decide the rate but declares only the price cap. He did not reveal the percentage increase in price cap approved for these two airports.

The airlines and other stakeholders have consistently raised concerns over the skyrocketing airport and other aviation-related taxes and levies in India.

Wolfgang Prock-Schauer, CEO and MD of GoAir had recently told DNA Money that such taxes and levies have the potential to cause a dent in the aviation growth story.

The earlier years of this decade had seen a drastic rise in taxes at some of the major airports.

In 2012, charges of Delhi airport were raised by a whopping 346% by the Aera. The hike included the landing, parking, usage of common user terminal and uplifting of fuel. Interestingly, Delhi International Airport (P) Ltd had sought 774% rise. The move was opposed by many airlines and the lobby group International Air Transport Association (IATA) had even named Delhi airport as the most expensive in the world.

Similarly, in 2013, GVK-run Mumbai airport had got approval for a 164% increase in revenue from aeronautical charges effective against a demand for an 881% hike.

Kolkata’s Netaji Subhas Chandra Bose International Airport got approval to raise aeronautical charges by 385% as compared to the charges in 2011-12.

Likewise, the regulator had allowed Chennai International Airport to increase aeronautical charges by 269% increase from 2011-12 charges.

According to the figures available with civil aviation ministry, Delhi and Mumbai airports have collected more than Rs 10,139 crore in user development and passenger fee till December 2015 since their privatisation during 2006-07.

...& ANALYSIS

  • Smaller airports believe they will lose the advantage to major metro airports if they increase the price
     
  • Airports have in past kept charges lower than the cap to stay competitive and for passenger convenience
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