New pricing norms could favour airlines3 min read . Updated: 11 Mar 2010, 05:05 PM IST
New pricing norms could favour airlines
New pricing norms could favour airlines
Mumbai: In a move that could potentially change the way airport charges are levied in India and benefit airlines as well as passengers, the newly formed tariff regulator Airports Economic Regulatory Authority of India (Aera) said the so-called single-till model is the most appropriate way to decide such charges in India.
In the single-till model, followed by UK airports such as Heathrow and Gatwick, all principal airport activities including aeronautical and commercial (or retail) are taken into account to determine the level of airport charges. In contrast, only aeronautical or flying-related activities are considered under the dual-till principle.
Airlines prefer the single-till model as airport charges are likely to be lower under it.
However, private airport operators and their investors are keen to have charges decided on the basis of a double-till model because this will help them increase revenue. Currently, most Indian airports do not earn significant commercial income.
“We have tentatively taken a stand that single-till is suitable in the Indian context. We have sought comments and views from the industry stakeholders. The final decision would be taken shortly," Aera chairman Yashwant S. Bhave said on Tuesday.
Aera has already circulated a draft consultation paper on the issue among airlines and airport operators. “As we are seeking feedback from the stakeholders, I cannot comment beyond this," Bhave said.
The last date to submit comments and suggestions is 19 March.
The choice of pricing model is critical as it will decide how much passengers will have to pay. Currently, passengers pay user development and airport development fees—a levy for future facilities being built at airports.
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Incidentally, the UK’s specialist aviation regulator Civil Aviation Authority (CAA) had proposed a shift from its traditional single-till approach to dual-till in 2003, but the country’s Competition Commission rejected the proposal.
CAA has since not recommended a shift to the dual-till pricing model.
In the consultation paper, reviewed by Mint, Aera said: “The authority (Aera) considers that the balance of the evidence relevant to the Indian situation points towards single-till being the most appropriate basis in general for the regulatory regime for major airports in India".
“Non-aeronautical revenue is clearly a function of aeronautical activity at an airport. Therefore, there is a persuasive case for non-aeronautical revenues to be taken into consideration for fixation of aeronautical tariffs," it said.
It also said a single-till approach protects interests of users by ensuring service provision commensurate with the tariff.
On 16 February, Mint had reported that airports and airlines in India are battling over the model that Aera should adopt for fixing airport charges.
“Aera’s stance is not final and there is a long way to go before fixing the airport charges. Passengers are already overburdened with multiple charges and this will adversely affect airlines and airports. But there will be no point in implementing single-till by allowing airport operators to levy more through various other avenues," said an aviation expert, who did not want to be identified.
He said the interests of passengers should be taken into account.
In January, Aera had sought initial comments on a white paper that audit and consulting firm PricewaterhouseCoopers Pvt. Ltd had 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.
However, airports beg to differ. “In the Indian scenario, there is an estimated Rs40,000 crore of investments required in airports and a signal to regulate the airports under single-till will send a wrong message to the investors. In a supply-lacked scenario, regulations should seek to bring in better competition by encouraging better airports and not by seeking to be seen favouring the consumers in the short term, which would ultimately prove to be myopic," wrote GMR Hyderabad International Airport Ltd, in response to Aera’s white paper.
The financial impact of the single-till model on airlines and passengers will be known only after airport operators submit their tariffs to Aera for approval.
Graphics by Yogesh Kumar/Mint