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Huge hike in airport charges and fees for passengers and airlines at Delhi. Fares expected to increase.

Image courtesy Wikipedia.

At a time when the Indian airline industry is already reeling under the double whammy of lowering economic output and sky-rocketing fuel prices, passengers and airlines are going to get hit by a massive hike in both passenger and aeronautical charges at the national capital New Delhi’s Indira Gandhi International Airport (IGIA).

The airport operator Delhi International Airport Pvt. Ltd. (DIAL), a consortium led by GMR Group, has been permitted an increase in charges of 346%, effective May 15, 2012, as per order 03/2012-13 of the Airport Economic Regulatory Authority of India (AERA). (Read the order here. It is 12MB PDF). The AERA order also provides for an increase in landing, parking, fuel throughput, and other aeronautical charges on airlines, who have indicated they will immediately pass on the hike to passengers in the form of higher airfares. The operator had been seeking an increase of over 800% in charges. The order provides for a further six per cent increase in charges in the following fiscal year signalling another worrying trend for airlines and passengers alike,

A less than satisfied DIAL released a statement saying

Delhi International Airport (P) Limited (DIAL) welcomes the revision in aeronautical charges promulgated by AERA. However, considering that the charges were stagnant for the last decade (since 2001), the revision of charges is much below our expectations. Tariff calculations show that the approximate increase in ticket pricing on account of passenger fee per pax, for the year 2012-13, works out to INR 290 on an average for domestic and INR 580 on an average for international. Delhi airport will compare favourably to other major global airports where passenger fees range between $ 25(INR 1300) to $ 30 (INR 1560) on an average, thus making a very soft impact on the passengers.

However, what has been left unsaid is the hefty User Development Fee (UDF) of up to Rs. 1,068 ($21.08) which will be levied in addition to the existing Airport Development Fee (ADF) of Rs. 1,300 (for international passengers) and Rs. 200 (for domestic passengers).

Additionally, for the first time, the AERA has permitted an airport to levy UDF on an arriving passenger, in this case, up to Rs. 881.10 ($17.39). Will this set a precedent for other airports in India? Almost certainly, yes.

On top of this UDF and ADF will come the Passenger Service Fee of approximately Rs. 130, thus taking the total fee a round-trip international passenger, to most destinations, will pay to an astounding Rs. 3,379.10 ($67). This constitutes about 10% of the average economy class airfare.

Domestic passengers will be hit even harder. Round-trip passengers to most of the major domestic destinations will pay a total fee of Rs. 1,184.40 ($23.43) (the chart below plus Rs. 200 ADF plus Rs. 130 PSF). This works out to almost 12% of the average domestic airfare.

Airline industry body IATA (International Air Transport Association) expressed its displeasure with the developments. Spokesperson Albert Tjoeng said

“The increase approved by AERA is extremely disappointing. This will make Delhi the world’s most expensive airport. It will also have a larger impact on India and its economy, with an expected 5-8% decrease in demand at Delhi as a result of higher costs, a fall in tourist arrivals and further damage to local and international airline connectivity. This is a big step backwards for Delhi’s ambition to be an aviation hub.

India’s aviation industry is already sick. This increase in Delhi’s charges will put it in intensive care from a cost perspective. The government needs to better coordinate its policies on aviation. While on the one hand the government is trying to help the airlines, the increase in Delhi’s charges will set back significantly whatever assistance the government is trying to provide. The Ministry of Civil Aviation as the custodian of India’s aviation industry needs to intervene in order to moderate this steep increase being imposed on both the airlines and the passengers. The government needs to take into consideration the long-term development of Indian aviation at its hubs.

The proposed rate card is also unacceptable as it violates ICAO’s policy of cost-based charging by having different landing fees for international and domestic flights. Charging UDF based on distance also violates this principle and in addition, distorts competition and creates a non-level playing field for carriers operating direct flights and carriers operating through an intermediate hub.

We welcome AERA’s decision to simultaneously commission an independent study in the asset allocation practice adopted by Delhi airport, where currently 89.25% of the assets are allocated towards aeronautical activities. We hope that this independent study will correct the allocation mix in the next control period.”

A spokesperson for India’s second largest carrier, IndiGo, said

We are extremely concerned about unreasonable burdening of the passengers and Airlines with this increase. All the airlines under the Aegis of FIA [Federation of Indian Airlines] had filed comprehensive comments to the consultation paper by AERA which proposed such increase. Other elements which formed the basis of this increase, particularly, the escalated project cost of Rs. 12,857 crores from the initial estimated Rs 8,975 crores, has also been challenged by the FIA in an appeal to the Regulator. The order passed by AERA fails to factor the views and objections filed by FIA during the consultation process. The appeals filed continue to be pending decision by the Regulator and thus the order is not a comprehensive order. While we evaluate next steps, we feel that such increase is against the interests of common consumers.

The Senior Vice President Finance at India’s largest carrier Jet Airways, Mr. Shivakumar indicated that given the tough times, airlines would pass on the entire cost increase to passengers. Similar sentiments were echoed by foreign airlines as well.

Detailing the breakup of charges and who is the receipient, the order says

At Indira Gandhi International Airport (IGIA/DEL/VIDP), Route navigation and facilitation charges ‘RNFC’ and TNLC charges are payable to Airports Authority of India (AAI). Landing charges, Housing charges, Parking charges, Cute Counter charges, User Development Fee (UDF) and Fuel throughput charges (FTP) are payable to Delhi International Airport Private Limited (DIAL). Airport Development Fee (ADF) is payable in accordance with AERA Order No. 28/2011-12 dated 14.11.2011 in addition to the above stated charges.

This order of the AERA is bound to renew the debate on the need for five-star airports, in an aviation system, that is overwhelmingly skewed towards low cost.

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About Devesh Agarwal

A global frequent flyer with over 20 years and four million air miles, he combines his knowledge, experience, skills and passion in aviation, product management, branding, social media, logistics and marketing on Bangalore Aviation. He is ranked 6th on Mashable's list of aviation pros on Twitter. A product management expert he was awarded a silver medal at the Lockheed Martin innovation competition 2010.
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