A steep hike in aeronautical fees at one of the busiest airports in India is likely to dent domestic and international operations of the country’s airlines, which are already reeling from a severe cash crunch.

The airlines argue that the three-fold tariff increase at Indira Gandhi International (IGI) Airport in New Delhi will not only unsettle daily operations but also hurt the country’s trade and tourism. “It will make IGI airport the most expensive airport in the world, making it difficult for airlines to recover such high tariff, especially when [the] economic and financial situation of airlines is bad,” the Federation of Indian Airlines (FIA) says.

“Some airlines may not be able to survive and would be under serious financial stress,” FIA adds.

Delhi International Airport (DIAL), Delhi’s airport operator, which is promoted by infrastructure developer GMR Group, received approval in April from India’s airports regulator, the Airport Economic Regulatory Authority (AERA), to increase the fees, starting May 15, by 148% for 2012-13 and 334% for 2013-14.

The fees cover airport charges for landing, parking, housing and ground-handling, among others.

Last week, the FIA moved a local court seeking a stay on AERA’s order to increase the fees collected from the carriers. The court will hear the petition July 10.

India’s aviation industry, once deemed one of the fastest-growing in the world, has been pushed into heavy losses by rising fuel prices, high interest rates and a weak rupee.

“These losses have amounted to 190 billion rupees ($3.6 billion) between 2008 and 2011,” according to the federal aviation ministry. “This year will add another 100 billion rupees to that total loss,” says a FIA official.

National airline Air India, which has been running a loss amounting to 200 billion rupees and massive debt of 430 billion rupees, lost nearly 6 billion rupees owing to a recent employees’ strike.

Kingfisher Airlines, which was considered India’s second-largest airline by market share until a year ago, lost 11.5 billion rupees in the January-March quarter, compared with a loss of 3.6 billion rupees a year earlier.

Jet Airways, India’s largest airline, posted a loss of nearly 3 billion rupees in the same period.

The FIA slammed AERA’s order to hike fees as “unlawful” because it was passed without following basic regulatory procedures.

DIAL, however, defended the move in a letter to the International Air Transport Association, saying there has been no increase in more than a decade. “The airport charges of Indian airports were not increased during the last 10 years except by [a] nominal 10% in the year 2009. The airport charges before revision have been historically at [a] very low level when compared to the other international airports,” DIAL says.

According to a DIAL official, the airport operator had sought a 24% return on equity but was granted only 16%. Similarly, for quasi-equity-based return on refundable security deposits, DIAL was granted zero return. These factors contributed to the fact that the approved fee revision was not in line with expectations.

DIAL, which had reported a loss of 4.5 billion rupees in the past fiscal year, expects to lose 9 billion rupees during the current fiscal year. “We have got less than 50% of what we asked for as per our legitimate entitlement. While the quantum of increase is much lower than our expectation, nevertheless, this increase will be a significant step in stemming the losses of DIAL and taking DIAL towards viability,” the DIAL official says.

Analysts say the fee hike 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.

  

Photo: IGIA