Hyderabad airport seeks hike in levies to turn profitable faster

Hyderabad airport seeks hike in levies to turn profitable faster

The two-year-old GMR Hyderabad International Airport Ltd, or Ghial, has sought regulatory approval for a steep hike in the charges it levies on passengers and airlines to help it turn profitable faster.

The Airports Economic Regulatory Authority, or AERA, suggested a smaller hike. Airlines and consumers voiced immediate concerns that more private airport operators would emulate the move, making air travel more expensive out of other cities too.

Also See Costly Flying (PDF)

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 650 crore over the next three years and enable it to turn profitable this fiscal itself.

Built at a cost of 2,920 crore, 25km away from the main city, the airport started operations in March 2008 after the old Begumpet airport, operated by the Airports Authority of India (AAI), was shut down.

Ghial was allowed to charge 340 each from departing domestic passengers and 907 from international passengers (excluding taxes) as a user development fee, or UDF, soon after it became operational.

The airport operator wants to increase the levies to 500 per domestic passenger and 2,825 per international passenger. It also wants to increase landing and parking charges for airlines by 10% annually and introduce a new levy of 4,000 for small aircraft landing at the airport, according to a letter it has written to AERA.

The increased charges and additional levy would allow it to earn revenue of 134.56 crore in 2010-11, 250.56 crore in 2011-12 and 274.63 crore in 2012-2013, according to a Madras School of Economics study Ghial has submitted to the regulator.

From making a projected loss of 98.08 crore in 2010-11, 76.45 crore in 2011-12 and 45.39 crore in 2012-13, it will swing to a profit of 31.04 crore, 164.08 crore and 218.25 crore, respectively.

Ghial had a loss in 2008-09 of 120 crore and in 2009-10 of 109.22 crore.

However, while agreeing to a hike, the regulator has called for a smaller increase in UDF.

“The authority proposes to revise the levy of UDF at the airport...from the existing rates to 420 per domestic embarking passenger and 1,656 per international embarking passenger (exclusive of service tax, if any) purely on an ad hoc basis, with effect from 1 November, based on the figures for the period 2008-09 to 2013-14," AERA said.

In a notice on its website, AERA has sought the views of all stakeholders, including consumer forums and airlines, by 7 October before it issues an order.

If the smaller increases suggested by AERA are enforced, domestic passengers will pay 23% more in levy for travelling from Hyderabad. International travellers will pay 82% more than the current levy until at least 2013-2014, unless the fee is reviewed again before then.

It’s not clear how the difference between the fees proposed by Ghial and those suggested by AERA will affect the operator’s profitability target.

AERA has, however, not taken a decision on the proposed landing and parking fee hikes, saying these commercial issues need to be decided by the operators.

Kaushik Khona, chief executive of Mumbai-based low-cost airline GoAir, said he was concerned other airports will demand a similar increase in levies. That would make flying out of airports in cities such as Bangalore, Mumbai and New Delhi more expensive as well.

“I don’t think it’s a welcome proposal," he said.

R. Desikan, trustee of Chennai-based Consumers Association of India, said he would strongly oppose the move which he called “exploitation by private airport companies" that amounted to a “rip-off" of passengers.

Ghial is a joint venture between GMR Group (63%) and Malaysia Airports Holdings Bhd (11%) on the one side, and the state government (13%) and AAI (13%) on the other.

The airport handled 6.9 million passengers in 2009-10, down from 6.22 million in 2007-08.

According to a December 2004 agreement, Ghial has no obligation to share revenue with the state government until the 11th year of operation.