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User Development Fee will not fully cover BIAL shortfall

Bengaluru International Airport Ltd. (BIAL), the operator of the Bengaluru International Airport (BIA), has decided to levy the long pending User Development Fee (UDF) of Rs 260 on all outbound domestic passengers, from January 16, 2009.

According to an official release by BIAL yesterday, the Ministry of Civil Aviation (MoCA) has given nod for levy of UDF.

Albert Brunner, CEO, BIAL said

“UDF is a crucial revenue stream for us although we have not been allowed to charge the amount we requested for. This is a beginning. The presently approved UDF is an ad-hoc. The final UDF will be decided by the ministry after further reviews or by the regulatory body appointed by the Government,”

With the crash in domestic traffic, monthly losses have zoomed in excess of Rs. 200 million per month, BIAL desperately needed the UDF. All development at the airport has been stopped by BIAL, with a lack of UDF being cited as the main reason.

Based on the September 2008 traffic, BIAL stands to earn about Rs. 66~70 million a month, which will not fully cover their shortfall. Their existing UDF request of Rs. 675 will allow them to fully cover their shortfall, but with the Ministry approving only Rs. 375 as UDF for Rajiv Gandhi International Airport (RGIA) at Hyderabad, an airport which is larger both in size and investment than BIA, I see no way for the Government to approve BIAL’s request and justify their decision. Added to this a figure of Rs. 675 is considered too exorbitant by everyone.

In my opinion, a UDF of Rs. 375 would be an acceptable compromise between the needs of BIAL and the cost on passengers. Keeping in mind the total crash in regional air traffic, a segment where costs are critical, it might behoove BIAL to keep the UDF at the presently approved Rs. 260 for regional flights.

In the mean time, to make ends meet, BIAL will have to critically analyse, and reduce their expenditure. BIAL should also put the aero-city and other real-estate projects on top priority for additional income.

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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