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New user fee for domestic fliers grounded at Rs 200

17 Mar, 2008, 0600 hrs IST, Nirbhay Kumar, TNN
http://economictimes.indiatimes.com/News/News_By_Industry/Transportation/New_user_fee_for_domestic_fliers_grounded_at_Rs_200/articleshow/2872347.cms

NEW DELHI: In a major relief to domestic passengers, the civil aviation ministry has told developers of the new international airports at Hyderabad and Bangalore to restrict user development fee (UDF) to Rs 200 instead of the initially-proposed amounts that were three times higher. However, the ministry is open to the idea of higher airport charges for international passengers.

UDF is in addition to passenger service fee (PSF) of Rs 225 levied at airports across the country. The ministry’s intervention means the GMR-Malaysian Airports team, developer of the Hyderabad airport, and Siemens-Zurich airport consortium, developer of the Bangalore airport, have to restrict UDF to Rs 200 in the case of domestic passengers till the proposed Airport Economic Regulatory Authority of India (AERA) is set up for regulating airport charges.

In the first four months of operation, the new airports are free to levy airport charges of their choice. However, they have to seek government approval for their tariffs after this period and that is when the ceiling of Rs 200 per passengers would kick in.

As of now GMR Hyderabad International Airport (GHIAL) plans to collect Rs 1,000 from every passenger taking an international flight from the new airport. There will be no charge for domestic passengers during the initial period. After this period, domestic passengers would pay Rs 650 each time they depart from the new Hyderabad airport.

Bengaluru International Airport (BIAL) plans to collect Rs 520 from each passenger — for both domestic as well as international services initially. However, the tariff would increase to Rs 675 in case of domestic passengers and Rs 950 in the case of international passengers after two months.

Passengers are left with no option but to pay the steep levy as the old airports at both cities are being closed. Apart from forking out higher airport charges, passengers are also faced with higher cab charges since the two airports are located outside the cities.

“We may agree to higher UDF for international passengers, but charging a steep fee from domestic passengers is out of question,” a ministry official said. It is understood airlines have complained that high airport charges would turn air travel unviable on short-haul routes. The aviation ministry is of the view that developers have long concession periods to recover their
cost and steep tariffs would be a heavy burden on travellers.

“The UDF private developers have proposed is completely unreasonable. But they should remember that they can collect such fees only for 120 days according to the concession agreement. They have to get their fee approved by us after this period. We feel airport charges of Rs 150 to Rs 200 from domestic passengers would be the most reasonable,” the official said.

“It’s very unfortunate that government is playing the part of regulator by interfering into fixing the tariff. It was expected that regulator would be in place at the time of opening of Bangalore and Hyderabad airports but it has not happened as expected,” Centre for Asia Pacific Aviation’s India head Kapil Kaul said.

“Lenders gave money to private developers on the basis of their plan to collect UDF as principle source of revenue. The airport projects are funded on debt-equity basis. Incorporating UDF as source of revenue is a necessity for the companies if they have to be viable,” he said.

The government has proposed setting up of AERA to regulate airport tariff and create competition among airports. It might take some time before the regulator is put in place as a Parliamentary standing committee headed by Sitaram Yechury is reviewing the AERA Bill. The bill is likely to be re-introduced in Parliament in the monsoon session.

GHIAL, a joint venture of GMR Group (63%), Airports Authority of India (13%), Andhra Pradesh government (13) and Malaysian Airports Holding Berhad (11%), has invested Rs 2,478 crore to build the greenfield airport in Hyderabad. The debt:equity ratio of the project stands at 2.1:1.

For the new Bangalore airport, BIAL, a consortium led by Siemens (40%), Unique Zurich and L&T (17% each), Airports Authority of India and KSIIDC (13% each) has invested Rs 2,470 crore. While equity, state support, internal accruals and security deposits contributed 35% to the total project cost, the remaining 65% was raised as debt.

The UDF component was included in the concession agreement to let developers recover their cost, considering the airport would be new and hence little scope of non-aeronautical revenue such as retail and hospitality. It may be noted here that Kochi international airport, the first private commercial airport in the country, collected a UDF of Rs 500 for many years, finally withdrawing it in January 2006.

In the concession agreement between the government and private developers GHIAL and BIAL, neither the UDF amount nor the period for which it would be collected has been specified.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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