India's airport tariff regulator wants to end a long-standing practice that allows private airports to charge passengers for infrastructure years before it is ready.
The Airports Economic Regulatory Authority of India (Aera) has proposed that airports recover the cost of major expansion projects only after those assets are completed and operational, instead of factoring them into passenger charges at the start of a tariff cycle. If adopted, the move would shift the burden of funding airport expansion from passengers to airport operators until projects are ready.
Last month, Aera began consultations with airport operators and airlines on levying user development fees (UDF) only after projects at existing airports are commissioned.
Currently, airports submit capital expenditure (capex) and business plans to Aera and, once approved, can recover project costs through passenger charges for up to five years—even before the assets are commissioned.
“It is logical that these high-value capex items are factored in the tariff determination from the time these projects get capitalized and put to use for passengers and airlines rather than considering its (project) value upfront in the overall aggregate revenue requirement (ARR) of the 5-year control period,” said Aera chairman S.K.G. Rahate at the stakeholder meeting held on 29 June. Mint has seen a copy of the minutes of the meeting.
Aera said the proposal was prompted by large investment plans submitted by Bengaluru and Hyderabad airports.
Bengaluru airport has proposed ₹18,635 crore of capex over five years, while GMR-run Hyderabad airport plans nearly ₹14,000 crore of expansion through 2031. Both proposals are under stakeholder consultation.
Under the proposal, which Aera calls an incremental aggregate revenue requirement (ARR), airports would begin recovering the cost of major brownfield projects only after those assets become operational.
Operators push back
Airport operators argue the change would materially alter project financing.
Fairfax-run Bangalore International Airport Ltd (BIAL), whose capex proposal was discussed last month, said recovering costs only after commissioning would affect cash flows and financing. Managing director and chief executive Hari Marar described it as “a major change to the tariff determination process with a sizable impact on the airport operator's cash flows.”
BIAL also argued that the current framework already discourages delays by imposing a 1% penalty on projects that miss commissioning timelines.
A BIAL spokesperson declined to comment, saying the tariff determination process is underway.
Airport tariffs, including user development fees, landing charges and parking charges paid by airlines, are ultimately passed on to passengers through ticket prices.
User development fees already vary widely across Indian airports. Domestic departing passengers, for instance, currently pay ₹129 at Delhi, ₹175 at Mumbai and ₹550 at Bengaluru, while newer airports such as Noida and Navi Mumbai have higher approved UDFs of ₹490 and ₹620, respectively.
Rahate defended the proposal by pointing to earlier tariff periods in which airports recovered charges for projects that were never completed within the five-year control period.
“In earlier control period there have been instances where some Airport Operators…included significant Capex items…which for some reasons or other did not materialise during the said 5-year Control Period, but which got factored in the tariffs right from the 1st year,” the minutes quote him as saying.
Those costs, he added, “were recovered from the travelling passengers and airlines without these capital assets actually becoming operational.”
He said the proposal was “not a new tariff methodology but a refinement within the existing tariff determination framework.”
Two Aera officials confirmed that the same concept is being introduced in Hyderabad airport's tariff consultation. "Consultation process is underway," one of them said.
Passenger relief, but future tariff risk
Analysts broadly backed the proposal while warning that deferring cost recovery could lead to steeper tariff increases once projects are commissioned.
“In isolation, the concept of an incremental ARR—where passengers are charged only when the asset is commissioned—is a good move,” said Mark D. Martin, chief executive of Martin Consulting. “But Aera has to see that passengers do not get a future shock in the long term like a sudden increase in user development fees.”
Passenger groups have supported the move.
The Air Travellers Association, present at the 29 June meeting, backed the proposal, saying passengers should pay only for infrastructure once it is operational.
“It is a welcome decision to start charging for infrastructure only when it is commissioned and put to use. This reduces the burden on passengers,” G.S. Bawa, ATA's secretary general, told Mint. “You do not charge toll tax from vehicles till a highway or expressway is built. Only after the road is built will tax be collected for maintenance and recovery of capital costs.”
Bawa also questioned the current cost recovery period. “A terminal building is an asset for say 20 years. So why does the operator need to recover the construction cost in five years,” he said.
Among airlines participating in the consultation, Air India cautioned that multiple UDF revisions within a year could create administrative complexity and passenger confusion, and suggested tariff revisions be aligned to a single annual cycle. The airline did not respond to Mint's queries.