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In the past few months, Aera had proposed a single-till regime for the Bengaluru and Hyderabad airports, but the airport operators, through an alternative route, secured permission to implement a hybrid till at their airports, side-lining Aera’s order. Photo: Mint
In the past few months, Aera had proposed a single-till regime for the Bengaluru and Hyderabad airports, but the airport operators, through an alternative route, secured permission to implement a hybrid till at their airports, side-lining Aera’s order. Photo: Mint

Aera vs government: regulator losing out?

After multiple instances of its decisions being overturned by the govt, the airport tariff regulator is seeking legal opinion to counter these setbacks

Mumbai: It has become a classic case of regulator proposing and government disposing. After multiple instances of its decisions being overturned by the government, India’s airport tariff regulator Airports Economic Regulatory Authority (Aera) is seeking legal opinion to counter these setbacks. Aera is also writing to the government expressing its displeasure at these decisions.

Based in New Delhi, Aera is a statutory body constituted under the Airports Economic Regulatory Authority of India Act, 2008, and was established by the government in 2009.

“We are seeking legal opinion on various instances where Aera’s stance was challenged by airport operators through various sources. We are also writing to the government," said an Aera official. He requested anonymity. “We are examining the implications of this."

In the past few months, Aera had proposed a single-till regime for the Bengaluru and Hyderabad airports, but the airport operators, through an alternative route, secured permission to implement a hybrid till at their airports, side-lining Aera’s order.

Aviation ministry officials declined to comment.

Airport operators are cheering the decision of the government while airlines are complaining.

On 11 June, GMR Infrastructure Ltd, whose unit GMR Hyderabad International Airport Ltd (GHIAL) runs the Hyderabad airport, said in a filing to BSE that the aviation ministry has asked the airport tariff regulator to adopt the so-called hybrid-till model to set tariffs. Aera had suggested a single till for Hyderabad airport.

In the single-till model, all airport activities—aeronautical and non-aeronautical—are taken into account to determine airport charges. So airlines and passengers are charged less. This model, currently followed at Hyderabad airport, is also followed in airports such as Heathrow and Gatwick in the UK.

In contrast, only aeronautical activities are considered under the dual-till model, which private airport operators prefer since it will fetch them higher revenue. Under the hybrid model, 70% of non-aeronautical revenues are also taken into account. This is the tariff model proposed for the forthcoming Navi Mumbai airport. The privatized airports in Delhi and Mumbai operate under the hybrid-till model.

Airports earn non-aeronautical revenue such as rent from retail outlets and airport parking charges, besides aeronautical revenues from flight operations.

“Instead of making it fiercely independent, the government is making Aera largely irrelevant in the tariff regime space," said an independent aviation consultant. The tariff determination of the Bengaluru airport is a case in point, he argued, requesting anonymity.

“The regulator first put out a consultation document on the basis of single till for Bengaluru airport, but upon being written to by the ministry of civil aviation, the regulator did a second consultation document which was on the basis of hybrid till to facilitate the development of a second terminal," he said.

Eventually, the regulator ruled that the Bengaluru airport would operate on the basis of a hybrid till.

“Airports find it easy to challenge every single order of the regulator and unleash a battery of senior counsel in the court, since the legal fee itself is a cost paid for ultimately by the consumers through the process of tariff regulation," the consultant said. He also noted that the government took a long time to appoint a new chairman for Aera.

“Now, private airports have a private tariff regime while government-run smaller airports have a single till. Aera will find itself in trouble when non-metro airports become major airports. These airports would then be determined on a single till since the concession agreement will say so—making Aera’s role irrelevant," the consultant added.

However, airport developers are defending their tariff structure.

G.V. Sanjay Reddy, vice-chairman with GVK Power and Infrastructure Ltd, said single till is largely adopted by government-owned airports. Reddy said there is no choice but to go with hybrid till as airports need to be profitable for airlines to make money.

He said the business model of the Bengaluru airport was based on a hybrid-till model, and it was conceived before the airport tariff regulator came into existence.

An executive with the GMR Group echoed the view that both airports and airlines need to be profitable for sustainability of operations and a hybrid model will help the Hyderabad airport garner more revenue to run more efficient operations. The executive declined to be named.

The problems are not confined to Bengaluru and Hyderabad.

Aera had recommended a 78% reduction in airport charges at Delhi airport, run by the GMR Group. However, the group has challenged the decision and is yet to implement the same.

“First, while respecting the legal process, we must find a way beyond the current legal challenges which are preventing the implementation of Aera’s recommendation for a 78% reduction in airport charges at Delhi," said Tony Tyler, director general and chief executive officer at the International Air Transport Association (Iata), a lobby group of airlines.

The 78% reduction was meant to kick in on 1 April 2014 and this follows a 340% increase prior to 2014 by Delhi airport.

“A further issue is to protect Aera’s independence. We are very concerned that stock exchange filings by Hyderabad airport show that the ministry of civil aviation instructed Aera to use a hybrid till, and not a single till, for its independent determination of the airport’s charges," Tyler said, and added that it is not right for the government to dictate terms on airport tariff.

“We are disappointed by the Aera’s lack of independent positioning," said Tyler of Iata, which represents nearly 260 airlines that account for 83% of global air traffic.

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