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Operators, airlines spar over airport charges

Operators, airlines spar over airport charges
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First Published: Mon, Feb 15 2010. 10 36 PM IST

Updated: Mon, Feb 15 2010. 10 36 PM IST
Mumbai: Airports and airlines in the country are battling over what model the Airports Economic Regulatory Authority, or Aera, should adopt for fixing airport charges that airlines must pay.
Airport operators prefer the so-called double-till model, in which aeronautical and commercial revenue, such as shopping at the airport, are lumped together, while airlines say the single-till model, in which purely aeronautical, or flying-related, activities are considered, should be adopted.
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Airlines say airport charges based on the single-till model are likely to be lower and will result in cheaper tickets for fliers. Airport operators, and investors in airports, insist that the double-till will enhance return on investment.
The decision on a pricing model is critical because it will decide how much passengers will have to pay, said a consultant with a global consulting firm, who did not want to be identified as he is not authorized to speak to the media. Currently, passengers pay user development and airport development fees; the latter is a levy for future facilities being built at airports.
“If airports are allowed to levy dual-till, flying will be more costly and footfall at airports will be impacted,” added this person.
The two schools of thought are evident in comments sought to a white paper that audit and consulting firm PricewaterhouseCoopers Pvt. Ltd (PwC) has prepared, on behalf of the government, to formalize the structuring and operational procedures at Aera.
“The single-till model incentivizes the airlines and airport operators to optimize the footfall at the airports,” Federation of Indian Airlines (FIA), a lobby group for domestic carriers, said in its reply to Aera’s white paper.
“These passengers in turn avail of the non-aeronautical services at the airports which generate significant revenue,” FIA added.
The FIA response has been formulated in consultation with the airlines, said executives at domestic carriers.
In its response to PwC’s paper, the International Air Transport Association, or Iata, which represents around 230 airlines, said it would be reasonable to assume that in the absence of aeronautical services, there would be no market for non-aeronautical services such as retail concessions and car parking.
Iata also cautions that airports will make investment decisions by allocating capital to generate the highest economic returns under a dual-till model. Non-aeronautical investment as an unregulated source of income will generate higher returns than aeronautical investment.
Thus, future investment decisions under a double-till arrangement will be weighted to non-aeronautical infrastructure, it said.
Private airport operators, however, do not buy that argument.
“A move to single-till would clearly present airports and their investors with a fundamental change in expectations from the initial sale and would be regarded by them as a major act of bad faith,” said Delhi International Airport Ltd (DIAL), a GMR group company that runs New Delhi’s Indira Gandhi International Airport.
It said, in its response to the PwC paper, that the companies involved would be unable to earn enough on their assets and may be forced to approach the government for fundamental renegotiation of the terms of their agreements. This, DIAL said, would “cast a shadow on the credibility of the public-private partnership process”.
“Non-aeronautical income is at a minuscule stage today in Indian airports, and incentives need to be provided to nurture growth in them and incentivize the airport operator to build a strong non-aeronautical revenue base,” it added.
The wide fluctuation in passenger traffic in the last five year, ranging from a decline of 7% to a growth of 31%, at Indian airports, makes investment decisions risky for airport developers, said the Association of Private Airport Operators, a lobby group.
An analyst recommended a so-called hybrid-till model as a possible solution.
“One needs to see this in the context of private airport players building world-class infrastructure and the government’s need to make these investments attractive,” said Manish Agarwal, executive director (advisory services) at KPMG Advisory Services Pvt. Ltd, adding that there is no academic answer as to which model is better.
“…You cannot ask customers to finance the infrastructure developments, but income from non-aeronautical revenues are risky too,” he added. “Therefore, it can be a hybrid-till.”
Photo by Madhu Kapparath / Mint
Graphics by Ahmed Raza Khan / Mint
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First Published: Mon, Feb 15 2010. 10 36 PM IST