Reduced ADF at New Delhi airport commences tomorrow. No change in UDF.

Passengers flying out of New Delhi's Indira Gandhi International Airport will receive some relief on the airport fees they pay.

Based on an order issued by the Airports Economic Regulatory Authority, the Airport Development Fee (ADF) rates at IGI Airport will be halved to Rs. 100 per embarking domestic passenger and Rs. 600 per embarking international passenger starting midnight tonight i.e. January 1, 2013.

The collection of the ADF is extended by two years and will be now collected tentatively till April 2016.

The staggered User Development Fee (UDF) will still continue to be collected, with no change, in addition to the ADF.

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Huge hike in airport charges and fees for passengers and airlines at Delhi. Fares expected to increase.

Image courtesy Wikipedia.

At a time when the Indian airline industry is already reeling under the double whammy of lowering economic output and sky-rocketing fuel prices, passengers and airlines are going to get hit by a massive hike in both passenger and aeronautical charges at the national capital New Delhi's Indira Gandhi International Airport (IGIA).

The airport operator Delhi International Airport Pvt. Ltd. (DIAL), a consortium led by GMR Group, has been permitted an increase in charges of 346%, effective May 15, 2012, as per order 03/2012-13 of the Airport Economic Regulatory Authority of India (AERA). (Read the order here. It is 12MB PDF). The AERA order also provides for an increase in landing, parking, fuel throughput, and other aeronautical charges on airlines, who have indicated they will immediately pass on the hike to passengers in the form of higher airfares. The operator had been seeking an increase of over 800% in charges. The order provides for a further six per cent increase in charges in the following fiscal year signalling another worrying trend for airlines and passengers alike,

A less than satisfied DIAL released a statement saying

Delhi International Airport (P) Limited (DIAL) welcomes the revision in aeronautical charges promulgated by AERA. However, considering that the charges were stagnant for the last decade (since 2001), the revision of charges is much below our expectations. Tariff calculations show that the approximate increase in ticket pricing on account of passenger fee per pax, for the year 2012-13, works out to INR 290 on an average for domestic and INR 580 on an average for international. Delhi airport will compare favourably to other major global airports where passenger fees range between $ 25(INR 1300) to $ 30 (INR 1560) on an average, thus making a very soft impact on the passengers.

However, what has been left unsaid is the hefty User Development Fee (UDF) of up to Rs. 1,068 ($21.08) which will be levied in addition to the existing Airport Development Fee (ADF) of Rs. 1,300 (for international passengers) and Rs. 200 (for domestic passengers).

Additionally, for the first time, the AERA has permitted an airport to levy UDF on an arriving passenger, in this case, up to Rs. 881.10 ($17.39). Will this set a precedent for other airports in India? Almost certainly, yes.

On top of this UDF and ADF will come the Passenger Service Fee of approximately Rs. 130, thus taking the total fee a round-trip international passenger, to most destinations, will pay to an astounding Rs. 3,379.10 ($67). This constitutes about 10% of the average economy class airfare.

Domestic passengers will be hit even harder. Round-trip passengers to most of the major domestic destinations will pay a total fee of Rs. 1,184.40 ($23.43) (the chart below plus Rs. 200 ADF plus Rs. 130 PSF). This works out to almost 12% of the average domestic airfare.

Airline industry body IATA (International Air Transport Association) expressed its displeasure with the developments. Spokesperson Albert Tjoeng said

"The increase approved by AERA is extremely disappointing. This will make Delhi the world's most expensive airport. It will also have a larger impact on India and its economy, with an expected 5-8% decrease in demand at Delhi as a result of higher costs, a fall in tourist arrivals and further damage to local and international airline connectivity. This is a big step backwards for Delhi's ambition to be an aviation hub.

India's aviation industry is already sick. This increase in Delhi's charges will put it in intensive care from a cost perspective. The government needs to better coordinate its policies on aviation. While on the one hand the government is trying to help the airlines, the increase in Delhi's charges will set back significantly whatever assistance the government is trying to provide. The Ministry of Civil Aviation as the custodian of India's aviation industry needs to intervene in order to moderate this steep increase being imposed on both the airlines and the passengers. The government needs to take into consideration the long-term development of Indian aviation at its hubs.

The proposed rate card is also unacceptable as it violates ICAO's policy of cost-based charging by having different landing fees for international and domestic flights. Charging UDF based on distance also violates this principle and in addition, distorts competition and creates a non-level playing field for carriers operating direct flights and carriers operating through an intermediate hub.

We welcome AERA's decision to simultaneously commission an independent study in the asset allocation practice adopted by Delhi airport, where currently 89.25% of the assets are allocated towards aeronautical activities. We hope that this independent study will correct the allocation mix in the next control period."

A spokesperson for India's second largest carrier, IndiGo, said

We are extremely concerned about unreasonable burdening of the passengers and Airlines with this increase. All the airlines under the Aegis of FIA [Federation of Indian Airlines] had filed comprehensive comments to the consultation paper by AERA which proposed such increase. Other elements which formed the basis of this increase, particularly, the escalated project cost of Rs. 12,857 crores from the initial estimated Rs 8,975 crores, has also been challenged by the FIA in an appeal to the Regulator. The order passed by AERA fails to factor the views and objections filed by FIA during the consultation process. The appeals filed continue to be pending decision by the Regulator and thus the order is not a comprehensive order. While we evaluate next steps, we feel that such increase is against the interests of common consumers.

The Senior Vice President Finance at India's largest carrier Jet Airways, Mr. Shivakumar indicated that given the tough times, airlines would pass on the entire cost increase to passengers. Similar sentiments were echoed by foreign airlines as well.

Detailing the breakup of charges and who is the receipient, the order says

At Indira Gandhi International Airport (IGIA/DEL/VIDP), Route navigation and facilitation charges 'RNFC' and TNLC charges are payable to Airports Authority of India (AAI). Landing charges, Housing charges, Parking charges, Cute Counter charges, User Development Fee (UDF) and Fuel throughput charges (FTP) are payable to Delhi International Airport Private Limited (DIAL). Airport Development Fee (ADF) is payable in accordance with AERA Order No. 28/2011-12 dated 14.11.2011 in addition to the above stated charges.

This order of the AERA is bound to renew the debate on the need for five-star airports, in an aviation system, that is overwhelmingly skewed towards low cost.

What are your thoughts? Please post a comment and share.

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No airport fee relief for Delhi passengers in Supreme Court ruling, only Mumbai impacted

Earlier today passengers cheered hearing that the Supreme Court of India ruled that the charging of Airport Development Fee (ADF) by the private airport operators was incorrect.

The initial cheer of air passengers flying out of Delhi though is short lived. A detailed reading of the record of proceedings of the case (read page 42 onwards) allows the operators of Delhi airport, GMR led Delhi International Airport Ltd. (DIAL) to continue charging the ADF of Rs. 200 and Rs. 1,300 on each domestic and international departing passenger respectively since it has received an interim order from the Airport Economic Regulatory Authority to charge such a levy. Unfortunately for the GVK led Mumbai International Airport Ltd., it has received no such permission and therefore will have to stop charging the Rs. 100 and 600 ADF it levies on departing domestic and international passengers.

Supreme Court of India CA 3611 .2011 ADF MIAL DIALpdf
In lay persons terms, the Supreme Court has said, the levy of the fee was not as per law, but now there is an interim order and so Delhi can continue charging the fee. How about the refund of the fee unlawfully collected? Tough luck. We cannot trace each passenger and refund the fee. Just in case the extremely learned counsels are not aware, each ticket, especially international, contains detailed passenger information, including payment information. Just refund it via the same means the original fee was paid.

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Supreme Court quashes Airport Development Fee at Delhi and Mumbai airports

The Supreme Court of India has ruled that the private consortia running the Delhi and Mumbai airports will not be allowed to charge an airport development fee (ADF) on passengers.

The stock prices of both the GMR group which leads Delhi International Airport Ltd. (DIAL) and GVK Group which leads Mumbai International Airport Ltd. (MIAL) were hammered on the stock exchanges. The New Indian Express reports

At 12.30 p.m., shares of GVK was down 3.62 per cent to Rs 25.60 and GMR was down 3.29 per cent to Rs 38.25

DIAL charges an ADF of Rs. 200 from domestic and Rs. 1300 from international passengers embarking from its airport, while MIAL charges Rs. 100 and Rs. 600 respectively.

A bench comprising justices R. V. Raveendran and A. K. Patnaik ruled in favour of Consumer Online Foundation, a non-governmental organization which had filed a public interest case against the levy of the fee on passengers.

The court is reasoning that only the Airports Authority of India (AAI), not private companies, has the rights under the law to levy a fee payable in advance of an airport construction.

Under the OMDA agreement with AAI, in order to compensate the private companies for their expenses and investments in the development of the airports, the AAI allotted them land in the vicinity of the airport.

However, passengers should not expect this as a relaxation of the User Development Fee or UDF which is currently charged at the Bangalore and Hyderabad airports. UDF is levied after an airport has been constructed and is based on the paid project cost and incomes.

Since the airport project at Delhi is completed, DIAL will be able to move from an ADF to a UDF regime very quickly. However, GVK will be impacted since the project at Mumbai is expected to complete only in 2012.

GVK has also gained control of Bengaluru International Airport Ltd., and has announced an expansion of Terminal 1. While this expansion is not expected to be impacted, today's ruling of the Supreme Court is bound to impact the financial flows and planning of the GVK group and this raises the question -- will the long term expansion of the airport i.e. Terminal 2 and the second runway (27L/09R) be impacted?

What is your view? Post a comment.

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Gouging passengers at airports to subsidise airlines

At the 65th annual general meeting and world air transport summit held in Kuala Lumpur in early June, Giovanni Bisignani, CEO of the International Air Transport Association (IATA) put India's two largest airports -- New Delhi Indira Gandhi International and Mumbai Chhatrapati Shivaji International on the ‘IATA Wall of Shame’ for their steep hikes of 207% in fees which, he said, added to the jeopardy of the aviation industry.

In parallel, for some time we have been hearing from airlines and their association IATA about India increasing its airport landing, parking and aero bridge (as called PBB) fees by 10% at a time when airports across Asia Pacific like Hong Kong International and Singapore Changi were reducing their fees by 10% or more, in a bid to attract or retain airlines.

Across the world, landing fees are based on the maximum take-off weight (MTOW) of an aircraft. When comparing the figures from Bengaluru International airport (BIA) and Singapore Changi airport, some very interesting numbers come up. It must be highlighted that the fees at all Indian airports are the same, so conclusions positive or negative apply to all airports in India equally, not just to BIA.

Indian airports are very cost effective in terms of their landing charges and their aerobridge charges. However, their parking charges for an overnight parking could best be classified as price gouging. God forbid an aircraft has a technical fault and is "aircraft on ground" (AOG). The airline will rue the day the parking bill comes to them.

Click on image for a larger view

The pricing structure also reflects the lack of synchronisation between current realities and the policy framing at the Ministry of Civil Aviation. This is no longer the 1950s when flying was a luxury and international air travel was only for the super rich and famous. Air travel and air cargo, domestic or international, is a vital and integral part of any economic activity today and politicians and bureaucrats alike, need to rapidly time warp their policies to align with the realities of the 21st century.

In India, pricing is heavily skewed in favour of smaller aircraft operating domestic flights. For the same aircraft the landing fees for an international flight are 33% higher than a domestic flight, reflecting the legacy thinking that a person travelling abroad must have boatloads of money. Compare this with the fact that today a 3.5 hour international flight from Bangalore to Singapore and back is probably cheaper than a 2.5 hour domestic flight to Delhi and back. This skewed thinking extends all through the aviation chain be it passenger fees or taxation on aviation turbine fuel (ATF) which is at a ridiculous 28% in most states.

For narrow body operations Indian airports' fees are 7% to 36% lower than Singapore, but for wide body operations India is more expensive by about 10% due to the 33% mark-up for international flights. For the Boeing 777-200 India is 10% cheaper than Singapore which is surprising when one considers the fact that Singapore Airlines is the world's largest Boeing 777 operator.


The biggest surprise came when passenger paid fees are added up. In India, airport operators gouge passengers with passenger service fees topped off by User Development or Airport Development fees which are amongst the highest in the world. The 207% hike in fees Mr. Bisignani was referring to, is essentially borne by passengers. Populism is running amok here with international passengers being asked to fork out airport fees three times greater than their domestic counterparts. Surely an additional customs and an emigration officer does not dictate such an enormous hike in fees?


Let us face facts -- there is no airport in India that can compare itself to those in Hong Kong, Seoul, Singapore, Kuala Lumpur, Dubai, Bangkok or Shanghai who are amongst the top airports in the world. The airports in India are monopolies, public or private does not matter, they are taking maximum advantage. Citing the slowdown in air travel, airport operators in India, government and private, are trying to increase charges and obtain the same income from the lesser number of travellers. It is like killing the proverbial golden goose, and Mr. Bisignani is right in his concern, air passengers are turning the Indian railways and various bus services in unheard of numbers.

At the same time, Mr. Bisignani should also introspect, India is not alone; globally, in this triangle of fees and charges, it appears that the airports and airlines have teamed up, leaving passengers to bear the brunt of airport income. Using IATA's own definition of a "typical flight" i.e. 73% passenger load factor, comparing the total fees paid by passengers on a narrow body (Airbus A320 with 110 passengers) or a wide body (Boeing 747-400 with 271 passengers) flight :

• In India :
• On a narrow body domestic flight passengers pay $1,178 as fees or 345% of the $341 an airline pays
• On a narrow body international flight passengers pay $2,749 or a mind boggling 631% of the $435 an airline pays
• On a wide body international flight passengers pay $6,772 or 247% of the $2,744 an airline pays
• In Singapore (only international flights) :
  
• On a narrow body international flight passengers pay $2,096 as fees or 419% of the $500 an airline pays
• On a wide body international flight passengers pay $5,164 or 203% of the $2,548 an airline pays

The skew is probably the worst in Europe with London charging a mind numbing $100+ per passenger in fees, and the United States is not much better, offering extremely crowded main airports with poor amenities compared to the fees they charge.

Despite the government in India announcing the formation of the Airport Economic Regulatory Authority (AERA), let us not be under any illusion -- the AERA will have no representation from passenger rights groups, and will essentially mediate only the charges between airports and airlines, leaving passengers to increasingly bear the brunt of airport fees and charges keeping India's air traveller numbers miserably low.

Additional source : Airport Authority (AA) of Hong Kong report.

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Foreign airlines pulling out of India as economy slows and airports hike fees

Japan Air Lines (JAL) has announced a reduction in its Tokyo New Delhi flight from a daily to four times a week.

JAL joins a large list of foreign carriers like Aeroflot, Austrian Airlines, Dragonair, Virgin, Singapore Airlines, British Airways, Finnair, Delta, KLM, All Nippon Airways (ANA), Sri Lankan, Air France, Lufthansa, and Malaysia Airlines, who have either withdrawn or cut back on their Indian operations over the last six months.

While the slowing economy is a reason, experts give significant attribution to the hikes in airport fees at a time when the rest of Asia Pacific airports are lowering their fees in a bid to attract or retain airlines and stimulate air travel.

Readers will recall that recently the Government permitted the private airport operators at Mumbai and Delhi to impose high Airport Development Fees, this on top of a 10% across the board increase in airport fees early this year.

Another reason for the withdrawals has been the massive capacity expansion by middle-east carriers like Emirates. One might even consider it capacity dumping.

Foreign airlines are also complaining of discriminatory treatment at the hands of many of the airport operators. They claim that despite being prompt on payment, the domestic airlines are being given discounts on dues even when they pay 90 days late.

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