AERA Open To Variable Tariff, Likely To Give Nod To Delhi Airport Plan

Despite concerns over higher operational costs for airlines and airfare hikes, the Airports Economic Regulatory Authority may give its nod to Delhi Airport's new tariff proposal next month.

GMR-led Delhi Airport has proposed a multi-fold hike in airport charges, while introducing a fee for arriving passengers. These charges relate to aeronautical services such as landing, parking, X-ray baggage checks and user development fees. Currently, both domestic and international passengers pay a flat Rs 52 plus taxes as UDF on their base ticket price. Delhi Airport has proposed increasing this fee to up to Rs 610 for domestic passengers and Rs 1,620 for international passengers for the next two financial years, besides additional hikes in parking and landing charges.

AERA, which regulates airport tariffs and charges for aeronautical services, is also currently reviewing a variable tariff structure proposed by Delhi Airport, which sets costs based on travel class and flight timing — a practice that is commonly followed globally, but is a first for any airport in India.

Airlines, however, argue that such a structure would financially burden them, especially during low demand when they are forced to offer discounts to draw in more passengers. There are also concerns that the proposed tariff could lead to excessively high airfares.

The regulator, however, defended the proposal during a shareholders' meeting on Feb. 17, arguing that the plan to charge passengers more would result in better services. Even with the proposed tariff hike, Delhi Airport's charges will still be among the lowest in India and globally, it said.

"AERA is open to the idea of differential pricing of airport charges based on time and class, as it will encourage competition between two airports resulting in better services to passengers on quality and cost parameters," Chairperson SKG Rahate said, as per the minutes of shareholders' meeting.

User development fee is directly paid by passengers to fund airport development and modernisation. It is included in the final ticket price, collected by airlines and passed on to the airport operator. If approved, business class flyers would have to pay more than economy class passengers.

AERA's director (tariff), Ram Krishan, backed the differential charges, stating that business class passengers benefit from enhanced services such as faster check-in, security check, priority boarding, etc.

According to AERA, the average UDF at major airports is Rs 472 per passenger, representing about 4% of average airfares.

While airlines follow dynamic pricing based on demand, UDF is fixed for five years, leading Rahate to argue that "it is not right to say that UDF plays a significant role in the exorbitant fares".

Domestic ticket prices would increase by 1.5-2%, if the proposed tariff hikes get approved by the regulator, according to DIAL Chief Executive Officer Videh Kumar Jaipuriar. The impact on international fares will be less than 1%.

For Delhi, the yield per passenger — the average revenue generated per passenger flying through the airport — will rise from Rs 145 to Rs 370, as proposed by AERA. This is compared to Rs 478 in Bangalore, Rs 533 in Chennai, and Rs 637 in Kolkata. Internationally, competing airport hubs have higher yields: Heathrow charges Rs 3,100, Schiphol charges Rs 1,507, Hong Kong charges Rs 946, and Paris charges Rs 1,770, with figures varying based on exchange rates.

YPP includes both airline and passenger charges, with the new structure shifting the balance toward passenger fees. Currently, 68% of YPP is attributed to airline charges and 32% to passenger charges. Under the new model, about 70% will be derived from passengers.

The airport operator has cited higher capital expenditure and debt servicing amid continued losses as reasons for the proposed tariff hike.

Airlines are still lobbying for lower rates. "Moderating the cost will help in reducing the burden on airlines, as they have to pay a higher cost if there is a supply and demand mismatch," said Rajan Malhotra, representing IndiGo.

Representatives of Adani Group and Bangalore International Airport Ltd. supported the new tariff rates. Adani Group representative, Madhur Arora, described the plan as "multi-dimensional", benefiting all stakeholders and enhancing economic viability of airports. Bhaskar V, general manager of regulatory affairs at BIAL, called the plan "balanced" and "reasonable".

The last dates for submitting comments and counter-comments are March 3 and March 13, respectively. After taking feedback, the regulator will issue the final order that will determine how costly travelling by air to and from Delhi Airport will become. The new tariff will be implemented from April.

Disclaimer: NDTV Profit is a subsidiary of AMG Media Networks Limited, an Adani Group Company.