Costs - Tab on Price Tag

In 2004, a passenger proceeding for security check at the Cochin International Airport was directed to get an airport ticket from a nearby counter. Perplexed, he went to the airport counter (distinct from the airline’s checking counters) and had to cough up 500 as airport fees in what was probably the first time in India that a charge, in addition to the Passenger Service Fee, was levied on international passengers.

The Cochin International Airport was the first Greenfield airport managed by a Public-Private-Partnership (PPP) and it was an indication of the charges levied on a passenger transiting a PPP airport. Today, the User Development Fee is charged to all international and domestic passengers in Mumbai, Delhi, Hyderabad and Bangalore. Incidentally, Cochin airport has discontinued charging this fee.

Every Penny Counts
With the major airports in India now following the PPP route, there is a need to regulate the charges levied. Therefore, the Indian government has instituted the Airport Economic Regulatory Authority (AERA). Economic regulatory authorities the world over focus on improving the economics of the industry so that the stakeholders, especially customers, gain from the regulations. This includes cost reduction, quality services, the monetary structures which reflect the costs and striking a balance between demand and supply. For example, one of the most famous regulatory authorities in India, the Telecom Regulatory Authority of India, was set up in 1997. Within the first decade of its creation, teledensity grew at 18 per cent. The corresponding figure in the 50 years prior its institution had been less than 2 per cent.

The aviation industry is among the forerunners that shape the nation’s economy. Airports are strategic infrastructure and their stakeholders are the owners of the airport, all the service providers including the airlines, and the passengers who pass through the terminals. The airport is a multi-faceted firm with two distinct sides—the airside, comprising the movements of the aeroplanes and services associated with air movements, and the non-airside, including the arrival/departure of customers from the terminal by surface transport. However, the market value of any airport is reflected in the density of air movements. For instance, the six metro airports of Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad account for almost 75 per cent of the nation’s passenger and cargo traffic. Therefore, market power is determined by the capacity to accommodate aircraft movement, parking bays, take-off, landing and taxiing facilities, handling of passengers and cargo.

Passengers like a well-equipped airport, operating with up-todate standards and efficient airports services such as duty-free shops and eateries. Therefore, the focus is on the fees levied on the customers—terminal charges (security and passenger facilities) and charges for landing and parking, ramp usage and cargo handling.

Key Parameters

• Transparency, rationality and consistency.
• Promotion of efficient and profitable activities of the airports.
• Caring for the interests of all stakeholders with reasonable assurance.
• Timely and appropriate growth of the airport, both in infrastructure and equipment, to meet anticipated demands.

In July 2003, the Government of India constituted the Naresh Chandra Committee to chalk out the roadmap of the civil aviation sector in India. The terms of reference included the restructuring of the airports and infrastructure, affordability of travel in the domestic sector and a regulatory mechanism on financial issues. Although a few of the committee’s recommendations have been implemented, which was submitted in November 2003, it has been inadequate. For example, the committee had proposed establishment of the Aviation Economic Regulatory Authority to oversee and deal with the natural monopoly and common user/carrier segments of the airports and air traffic control. The AERA was instituted after Parliament passed the relevant Act. While the acronym remains the same, the first word Aviation was replaced with the word Airport.

The Bill was passed in October 2008. However, the Chairman is yet to be appointed and the authority is yet t to commence functioning. The Bill states that the authority will:

• Determine tariff structure for aeronautical services, taking into consideration:
  • Capital expenditure incurred and timely investment in improvement of airport facilities,
  • Service provided, its quality and other relevant factors,
  • Cost of improving efficiency,
  • Economic and viable operation of major airports, and
  • Concessions offered by the government in any MoU, provided that different tariff structures are determined for each airport.
• Determine the quantum of development fee with respect to major airports.
• Determine the quantum of passenger service fee to be levied under the Aircraft Rules (At present, it is 225 on domestic flights at all airports).
• Monitor the performance standards relating to quality, continuity and reliability of service as may be specified by the Central government or any authority authorised by it.
• Call for necessary information to determine the tariff.
• Perform such other tariff related function as may be entrusted to it by the Central government or as may be necessary to carry out the provision of the Act.

The AERA will also have the authority to penalise for failure to comply with its orders and directions under the Act.