Airlines have opposed Adani-owned Mangaluru Airport’s proposal to increase user charges, saying it will impact their recovery from the damage caused by the pandemic.
The Federation of Indian Airlines (FIA), which includes IndiGo, SpiceJet and Go First, has suggested that the airport instead raise its revenue from non-aeronautical sources and cross-subsidise passenger charges and landing and parking charges for airlines. Under the tariff model, 30% of non-aeronautical revenue is used for cross-subsidies and reduced charges for passengers and airlines.
Fares regulator Airports Economic Regulatory Authority of India (AERA) has also asked the airport operator to try to substantially increase revenue from non-aeronautical activities, which include revenue from sources such as duty-free shops, restaurants, lounges and car parks.
Mangaluru Airport has sought an immediate 49-74% hike in passenger, landing and parking charges for the next five years to fund development activities. It also applied for permission to collect a user fee from both arriving and departing passengers – it is not usually collected from arriving passengers.
A person familiar with the development said Mangaluru has limited scope to increase non-aeronautical revenue and currently the airport developer is focusing more on improving infrastructure and security conditions at the airport. Adani Airports Holdings took over the operations of the airport in Karnataka in November 2020.
In its projection to the Tariff Regulatory Authority, the airport said its non-aeronautical charges for the period from April 1, 2021 to March 31, 2026 will be Rs 40.34 crore.
In its review, AERA noted that the projection was too low because at other privatized airports, non-aeronautical revenues accounted for at least 50% of total expenses incurred by operators in the period. The reason is that these revenues are directly related to the increase in the area of terminal buildings and the increase in passenger traffic. The gradual increase in non-aeronautical areas in the terminal building and the return of domestic and international passenger traffic to pre-Covid levels will lead to growth in non-aeronautical revenues, the tariff regulator noted.
Mangaluru Airport has selected Adani Airport Holdings as the service provider for its non-aeronautical services through a tendering process. The tender was based on a revenue sharing mechanism.
The airlines said AERA should ask the airport operator to rework the agreement.
“We request the AERA to encourage airport operators to enter into appropriate agreements with concessionaires to exploit the non-aeronautical revenue potential. AERA should conduct a detailed investigation with the help of an independent study to be conducted on non-aeronautical revenue,” the FIA said in its letter.
In its response to AERA, the airport said the agreement was signed during Covid and therefore there is more emphasis on the minimum guarantee. “This has insulated the airport operator from any future contingencies that could have a negative impact on non-airline revenue,” the airport said, adding that the tender was done through a global competitive bidding process and a third-party consultant was also appointed to oversee the process. “Such a course of action (redrafting the agreement as requested by the airlines) would violate the very purpose of open competition and undermine well-established judicial principles in this regard,” it said.
A person with knowledge of the fare filing process said the growth in non-aeronautical services will show over time as the airport begins to build urban infrastructure. “Currently, we are focusing on completing the work already started and improving the infrastructure that will improve the overall security of the airport,” the person said.
The proposed development projects, including a new runway carpet and construction of a new terminal building and cargo terminal, are estimated to cost around Rs 5,200 crore.