Aera plans to limit revenue payable to airport operator by third-party service providers at 30% of gross turnover
Your airport charges may come down a bit soon.
Airports Economic Regulatory Authority of India (Aera), which determines financial aspects of airports in India, is considering capping the amount/percentage of royalty/revenue share payable by independent service providers (ISP) to an airport operator at 30% of gross turnover.
The move, if implemented, is likely to bring down charges for the end-consumers, including air passengers and purchasers of these cargo goods and commodities.
ISPs are third-party companies that provide cargo facility, ground handling and supply of fuel to aircraft at major airports.
While the industry stakeholders have time until April 24 to respond, airport operators are planning to a tough stand against the proposal.
While a handful of airports including that of major metros of Mumbai, Delhi, Hyderabad, Bengaluru are run by private operators, most others are operated by central government owned Airport Authority of India (AAI). An official from a privately-run airport said the operating cost of business is very high, especially at major airports, which results in higher revenue sharing/licence fee/royalty payment by the ISP.
"How are we going to recover the huge investments made by us in the project if the regulator keeps poking its nose in the free market like the way it is doing now?"
The move came after Aera noticed that some airport operators, due to lack of any regulation, were charging unreasonably high royalty/ revenue share from the ISP, thereby which are ultimately borne by end-users and end up limiting the growth of the sector.
In a scathing attack on such airport operators, Aera, in its consultation paper on the subject, said, "The rates charged for services do not seem to be commensurate with the cost or quality of service provided."
Aera officials during their investigation found that the profitability of the ISP is low due to the high rate of royalty/licence fee/revenue share, and this limits their capability to upgrade facilities and quality of service. Further, in a monopoly situation, there is no incentive to invest in expansion and modernisation of the facilities.
"Since these charges are meant to acquire the right to do business in the airport, they do not have any relevance to costs incurred by an airport operator, and are therefore not consistent with the policies of International Civil Aviation Organization (ICAO) relating to tariff determination," the consultation paper said. ICAO is a UN-backed body tasked with monitoring and broadly regulating the overall civil aviation sector across the world.
Aera is considering allowing existing contracts between ISPs and airport operators to continue till May 31, 2019, after which they will have to be negotiated with 30% ceiling.
The Indian aviation market is among the fastest-growing in the world. As per an IATA report released on Tuesday, India was a big mover in this year's rankings by jumping up two places to the No.4 ranking with 131 million departures in 2016, and with a stellar growth of 20% year on year continues to close in fast on Japan. Just three years ago, India was at the No.8 position. Similarly, the total air cargo at all Indian airports during 2016-17 (April 2016-February 2017) witnessed a growth rate of 9.3%, according to the AAI statistics.
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