With the new civil
aviation policy proposing to extend the so-called hybrid till model for
determining airport charges to state-run (Airport Authority of India-operated)
airports also, passengers will have to fork out more as user development fees
(UDF). Besides, they could also suffer from airlines deciding to treat their
share of the extra cost as a pass-through to the passengers, analysts said.
This runs contrary to the new policy’s objective of making air
travel more affordable.
Airport charges are universally determined under single till,
double-till and hybrid-till mechanisms. In all cases, airport operator gets a
predetermined internal rate of return (IRR) as per the concession agreement.
Under single-till mechanism, revenues from both aeronautical (landing, parking
and ground handling) and non-aeronautical (duty-free shops, hotels, restaurants
and airport infrastructure) segments are taken into account to determine the
IRR.
However, under the hybrid till method, which is currently being
used by joint venture (public private partnership) airports, only 30% of
non-aeronautical revenue is taken towards IRR, allowing the operator to pocket
70% of the non-aeronautical revenue. The idea is to encourage the operators to
expand airport infrastructure. But the lower revenue base compared to
single-till method practically prompts the operators to levy higher charges
(UDF) on passengers and airlines.
For instance, the Airport Economic Regulatory Authority (AERA)
in 2014 determined tariffs on the basis of single-till for the Hyderabad
airport and ruled that the UDF be made zero, still allowing the airport
operator to achieve the targetted annual revenue. The airport operator GMR was
later allowed by the Andhra Pradesh High Court to collect charges as per
hybrid-till method. This resulted in UDF of Rs 1,938 for international
passengers and Rs 491 for domestic passengers, corresponding increase in
airfares.
Some experts say that the new aviation policy has ignored the
conclusions reached by the AERA and the ministry of finance after an extensive
evaluation that single-till method is the most suitable for India. However, the
aviation ministry defended its decision to extend the hybrid till model to AAI
airports. “It (hybrid till) won’t lead to an increase in UDF; on the contrary,
the method will attract private investments and boost commercial development at
the airports,” RN Choubey, secretary at ministry of civil aviation said. He
added the decision was based on the success of this model at international
airports run by private operators in joint venture with AAI namely Delhi,
Mumbai, Hyderabad and Bangalore airports.
“This change makes AERA a toothless entity. Passenger charges in
India will increase, making air travel more expensive. And it contradicts one
of the stated intentions of the civil aviation policy to make flying
affordable,” Conard Clifford, regional vice president, Asia Pacific, IATA said.
He added that the UDF charged at Hyderabad airport seems to have no correlation
to what is the targeted annual revenue requirement for the airport and is a
case example which establishes that single-till is in the best interest of the
Indian passengers.
“There is no fixed mechanism to find out how the charges will
increase under the hybrid-till method. Moreover, it will depend on AAI if it
wishes to increase the UDF; it may choose to charge the airlines instead,”
Amrit Pandurangi, senior director at Deloitte said.
The final civil aviation policy stipulates that under the
hybrid-till mechanism if the tariff in one particular year or contractual
period turns out to be excessive, the airport operator and regulator will
explore ways to keep the tariff reasonable, and spread the excess amount over
the future.
By: Bilal Abdi | New Delhi
Courtesy The Financial
Express
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