No clear winner in the vexing airport fee tussle

The long-delayed revision of charges involving the Delhi airport seems to be caught in a departmental crossfire.

While Delhi International Airport (DIAL) wants a 774% hike, the Airport Economic Regulatory Authority’s (Aera) prescription stands at 334%.

But going by all indications, the final figure may come in somewhere between these two.

This is so because different sets of assumptions could be taken into consideration to determine the fee adjustment for the airport operator, which is already losing revenues as tariff revision is way behind schedule.

Yashwant S Bhave, chairperson of Aera, told DNA Money if the view of SBI Capital Markets, which has conducted a study on fee revision on return on equity of 18.5-20.5%, is considered, then the hike in charges would be higher than 334%.

Aera had assumed a 16% return on equity for arriving at the airport charges, while DIAL has taken 24%.

The two also differ on the traffic growth over 10 years at the Delhi airport while working out the increase in the fee structure. Aera’s traffic growth numbers are much higher than DIAL’s. This could again push up the percentage hike proposed by the airport regulator.

Other elements that could take the final fee hike past Aera’s fee revision are returns on revenue security deposit and opportunity costs.

“It (airport charges hike) is a calculation based on certain assumptions, which some may think reasonable and others may not,” said Bhave. He said the one-time hike appeared to be high because it has not been revised for over 10 years. The airport regulator has locked horns with DIAL over the tariff adjustment at the Delhi airport. The regulator’s proposal of one-time hike of 334% translates into a hike of 148% each year for two years.
The current confusion over the tariff policy stems from the fact that an independent airport regulator came into being only after the construction of several private airports.

Even as the jury is still out on how much of an upward revision in charges is desirable, the International Air Transport Association and global ratings agency Standard & Poor’s have slammed the move, saying it will adversely impact the aviation sector by pulling down passenger and air traffic at the country’s business airport while squeezing airline margins.

“We believe any large increase in tariffs could moderate the strong growth through Delhi airport over the past two or three years. We expect tariff increase to result in some reduction in the number of flights to and from Delhi over the next two or three years,” said Rajiv Vishwanathan, primary credit analyst, Standard & Poor’s.

He sees limited flexibility at Delhi airport to absorb tariff adjustments because it worked on the hybrid till model, where only a certain portion of an airport’s non-aeronautical revenues subsidise aeronautical charges.

Most airports around the world use single till model which allows the use of all non-aeronautical revenues to subsidise aeronautical charges.