New Delhi: Malaysian low-fare carrier AirAsia Berhad will from 11 January suspend operations from the Hyderabad airport because of increased levies on international passengers, setting a precedent that could hurt operators of swank, new airports built with billions of dollars in investment.
AirAsia’s move comes about two months after GMR Hyderabad Airport Pvt. Ltd (Ghial) increased international passenger charges by almost 100% to turn profitable faster, after receiving approval from the airport regulator Airports Economic Regulatory Authority.
Hyderabad airport charges Rs1,875 per international traveller as a user development fee as it tries to recoup the cost of building the Rs2,920 crore airport. It was allowed to increase the fee in October from Rs1,000. Domestic passengers are paying Rs475, 26% up from Rs375 earlier.
“If we have to pay Rs1,875 plus Rs225 as passenger service fee, Rs515 as a service tax on a Rs4,000 average air fare, how do we operate?” said Suresh Nair, regional manager (India, Sri Lanka and Bangladesh) at AirAsia.
AirAsia expanded its Indian operations significantly in 2009 and 2010.
It now operates 68 weekly flights from India, up from four in 2008. AirAsia started direct services between Hyderabad and Kuala Lumpur in July 2010, with four weekly flights.
Nair said the airline had written to Ghial to offer relief from the increased charges, but there had been no reply from the airport operator, forcing AirAsia to pull out.
Ghial said it was “certainly disappointed with this move” but said the pullout by the airline didn’t have anything to do with higher charges.
“The call to withdraw operations is taken by AirAsia across several airports in India,” said a Ghial spokesperson in reply to queries from Mint. “We understand that they have pulled out from various airports and have decreased frequencies from other major metro airports. Hence their decision at Hyderabad Airport is more due to the low load factors.”
The airport operator declined comment on why it had not replied to AirAsia’s calls for relief.
AirAsia’s Nair said that besides Hyderabad the airline had pulled out of only Trivandrum because it flies nearby Trichy and Kochi airports.
“We are increasing flights from 11 to 14 weekly in Chennai and we have started Delhi and Kolkata to Bangkok from December 1,” Nair said, adding that flights from major cities were being increased.
“It should be an eye opener to everyone,” said a domestic airline official who declined to be identified.
“I won’t be surprised if other airlines pull out if fuel prices increase. The real impact will be felt after January 10 because that is when the low season starts.” This official said that on short-haul sectors such as Hyderabad to Chennai, “only those with need will fly” because “you cannot charge more than Rs2,500 on a Hyderabad-Chennai route”. Of Rs2,500, nearly Rs900 goes towards airport charges and taxes.
Air India, Jet Airways, Kingfisher Airlines and IndiGo had opposed the increase in charges during the consultation process last year.
“As air travel is picking up after a severe downturn, Ghial should not insist on higher charges,” said India’s largest airline Jet Airways (India) Ltd.
It’s not uncommon for budget airlines, including Europe’s largest discount carrier in Ryanair Holdings Plc., to pull out of airports because of increased expenses.
“Ryanair pulled out of various airports due to tax rises as this hurts their low-cost business model as they don’t want to pass higher fees on to passengers,” said London-based aerospace analyst Saj Ahmad. “I believe Jazeera Airways was priced out of Dubai airport as this was their second hub after Kuwait because the Dubai government wanted Flydubai to be the only LCC operating from Dubai airport.”
For India, it may not be a good sign because airports in cities such as Hyderabad, Bangalore, Mumbai and New Delhi are still new or are being modernized.
Some $7 billion (Rs31,640 crore) is being invested in development of new metro airports in the country.
“In India, if an airline pulls out of a new airport, I’d blame the airport. Why invest in infrastructures to attract new business if you price them out...? It’s a total no-brainer. If you price airlines out, who will bear the airport costs of development etc?” said Ahmad.