Tuesday, August 13, 2019

To make India truly affordable for travellers, tackle airport monopolies

For Indian airlines, the current commercial fleet of 500+ aircraft is likely to double within the next 7-10 years. And this fleet requires adequate airport capacity – for developing networks, for parking the aircraft and for flying the aircraft. As of the latest count, there are 137 operational airports across the country and more are being developed. And within these, metro airports continue to be key to aviation traffic with about 61 percent of the domestic traffic and about 73 percent of international traffic still originating from the six metro cities. All of these airports operate as monopolies – which has consequential impacts on affordability and access.

Current model ensures monopolies
The current model of airport development is based on ensuring airport monopolies. The airports argue that since airport development requires substantial investment and involves long gestation periods, a monopoly is the only way for airports to ensure a return on capital. Thus the rules such as “right of first refusal” which are in direct contravention of the stated policy goal of driving affordability and access.
In cities where airports should have complimented existing airports, operators insisted on water-tight contracts that effectively shut down or ban use of the older airports. Case in point: Bengaluru, Hyderabad and Cochin. A similar fight will likely play out in Goa once the Mopa airport comes into existence.

In all cases the disadvantage flows to the end user: the passenger.
Airport funding mechanism has been such that the costs of capacity are borne by passengers via development fees. And airports spend significant time and effort to ensure that several areas are covered under the regulatory asset base – thereby enabling a levy of development fees. These fees are captive fees given that the airports are monopolies. The passenger simply has no other option if wishing to travel by air. The proposition is both unfair and unjust.

The numbers speak for themselves. For instance at Delhi airport, the final project cost was 3.8 times the initial estimate and in the case of Mumbai it was 1.7 times the initial estimate. The cost of these overruns was covered by the flying public. Both airports were allowed to levy development fees to the tune of nearly Rs 3,400 crore.  The contribution via fees levied on passengers being 1.2X–1.4X the equity contribution in the case of Delhi and 3.0X–3.2X in the case of Mumbai.
13/08/19 Satyendra Pandey/CNBC TV18

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