Indian air carriers have opposed an increase in passenger levies proposed by the Hyderabad airport operator, saying it risked stifling air traffic growth and hurting an aviation recovery that is still nascent, amid concern that other airports would follow suit and raise charges.
GMR Hyderabad International Airport Ltd, or Ghial, has sought to increase the user development fee from Rs340 to Rs500 per departing domestic passenger and from Rs907 to Rs2,825 per departing international passenger.
The airport regulator, Airports Economic Regulatory Authority (Aera), has suggested a smaller increase to Rs420 and Rs1,656, respectively, and had sought the views of stakeholders such as airlines and airport operators at a consultation in Hyderabad on 29 September.
Around 70% of those who attended the meeting opposed the proposed increase while 30% favoured the move, according to the minutes of the meeting posted on the regulator’s website.
While Ghial provides good infrastructure, the aviation industry is “just picking up after a severe downturn”, Jet Airways (India) Ltd said at the meeting, adding that the airport operator “should not insist on higher charges”.
Ghial had been projected to be a loss-making entity for at least the next three years. The proposed increases in levies would earn it an additional Rs650 crore over the next three years and enable it to turn profitable this fiscal itself.
National carrier Air India, Kingfisher Airlines Ltd and IndiGo, the country’s largest low-fare carrier run by InterGlobe Aviation Pvt. Ltd, also opposed an increase.
“While the revised UDF (user development fee) rates may improve the viability of the airport, any increase may discourage the air passengers, which could eventually lead to drop in traffic growth,” said Air India executive director Vinita Bhandari.
Airlines lobby Federation of Indian Airlines, or FIA, opposed the proposed increase, which has raised the prospect of other private operators that run airports—in Bangalore, Delhi and Mumbai—also increasing levies.
“(While) determining the benchmark rate for RoE (return on equity), the authority should take into consideration the fact that the airport operators get significant revenue from non-aero services where returns/margins are much higher than the returns available from aero services,” FIA said in its submission.
Ghial managing director Kiran Kumar Grandhi said the UDF the airport operator had been allowed to levy in 2008, soon after it became operational, was inadequate and left it with losses in the last two years. Raising the “UDF is critical at this stage” for it to maintain “globally benchmarked performance standards”, Grandhi said.
The Andhra Pradesh government backed a higher UDF to “to ensure viability of the world-class infrastructure created at the Hyderabad airport”. The Association of Private Airport Operators Association said the airport “needs to be remunerated with a reasonable return”.
Aera is likely to decide on the increase over the coming fortnight. If the smaller increase suggested by the regulator is enforced, domestic passengers will pay a levy that’s 23% higher for travelling from Hyderabad. International travellers will pay 82% more than the current levy until at least 2013-2014.
Even marginal increases in charges have been shown to drive down traffic growth, says an analyst report. “As we have found in India, price changes of just Rs300 on a domestic sector can have a noticeable impact on demand. So the impact of increasing airport charges on traffic should not be underestimated,” said the recent report by the Centre for Asia Pacific Aviation.