Malaysia-based budget AirAsia says high taxes are affecting its business model, which has led it to pull out of Hyderabad International Airport, starting Jan. 11. The carrier is also leaving Trichy Airport in South India.

Hyderabad Airport recently lost business from Sri Lankan Airlines and Gulf Air, which terminated operations to the destination.

AirAsia is also suspending service from Chennai to Penang, starting Jan. 21, although it is increasing frequencies on other sectors. Aviation Week learned the pullouts could be temporary because the carrier is not giving up its slots.

The airline is now turning its sights to Delhi International Airport. Along with India’s domestic budget carriers, it has asked the facility to convert the terminal used by low-cost airlines into an international and domestic budget terminal.

High airport taxes are hurting. “We are a commercial airline getting into a new market. If we have to pay half the ticket price in taxes on an average $100 fare, it doesn’t make commercial sense,” says Suresh Nair, AirAsia's regional manager for South Asia.

Now that 70% of airline operations in India are run by low-cost airlines, there is concern that the user development fee introduced by Hyderabad Airport could set a precedent for Bengaluru, Delhi and Mumbai.

“Fancy airports have been built with fancy charges, and they never saw the reality that is the budget model in their planning,” says an airline official.

"Budget carriers like AirAsia that follow a philosophy of advance booking for the best fares, can only do it if their operating costs are low … This attitude will not help the airport get more business,” says an analyst.

Interestingly, the first new airline to fly to the new Terminal 3 of the Delhi airport since its opening last August was AirAsia and the second was Thai AirAsia. No other new carrier has come since then.

AirAsia founder Tony Fernandes last year commented on India's airport dilemma. He said, “Indian airports are of two types. [There are] the private parasites who are doing a job. They put in money and want a return. But the danger is nobody is regulating their return. They look for short-term profits as opposed to long-term development. Then there are the government airports, where people get paid a salary [but] they do not do much work. Airports are always a problem in Asia.”