Airport authority proposes cap on revenue share of ISPs in India

Written by: Felicity Stredder |
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A proposal by Airports Economic Regulatory Authority of India (AERA) to cap royalties paid to them by independent service providers (ISPs) has been opposed by airport operators.

Currently, airport operators in India can charge as much as 40-42% from some ISPs, which include ground handlers, cargo handlers and refuelling companies. This leads to losses for the companies and increases the cost for the end consumer.

After noticing that some airport operators were charging unreasonably high revenue share due to lack of any regulation, AERA has proposed that the charge be capped at 30% of the ISP’s gross turnover. In its consultation paper on the subject last month, AERA stated: "The rates charged for services do not seem to be commensurate with the cost, or quality of service provided."

AERA's proposition has led airport operators, which include privately run airports in Mumbai, Delhi, Hyderabad, Bengaluru and Cochin, to voice their opposition, claiming that it will increase the airport costs and raise airfares.

Mumbai International airport asserted that the charges for ISPs differ on an individual basis. "Limiting the royalty/concession fee at a specified percentage would limit the availability of cross subsidy and lead to increased aeronautical charges which shall be detrimental to the interest of airlines and passengers and will benefit users of these services at cost of passengers," the airport said. Delhi airport's President Finance and Business Development, Sidharath Kapur, said: “Any change in terms with ISP will lead to actual revenue being lower than revenue forecasted in airport's tariff model. This will lead to worsening of financial position of airport operators.”

On the other hand, air passenger associations and cargo companies say that high charges of airport operators are against the rules of United Nations-backed ICAO and European Union and limit the aviation sector growth in the country.

Unsurprisingly, airlines and ISP operators also take the opposing view to the airport operators. An IATA official commented: “We believe AERA should aim to not allow any royalty fees. However, if AERA intends to continue to allow them (with a cap), a more appropriate level that we believe is sustainable for the industry, is a cap of 5%.”

Kamal Kikani, VP Airports at GoAir, a Mumbai-based low cost carrier, also commented on the charges. "It is [this] kind of multiple layering that is raising the cost of air travel, taking the masses away from flying.”

However, the airport fuelling arms of oil companies run by Bharat Petroleum, Hindustan Petroleum and Indian Oil, have opposed AERA's move. They suggest that, as they currently pay around 5-6% of revenue sharing, a cap of 30% would actually serve to encourage the airport operator to increase this charge.

A decision on whether or not the cap is to go ahead has yet to be made.

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