Mumbai International Airport Limited's proposal seeking 660% hike in aeronautical tariff will adversely impact passenger demand, according to aviation industry experts.
Any hike in tariff has to be approved by Airport Economic Regulatory Authority which is now examining MIAL's proposal. In April AERA has approved a 345% hike in tariff for Delhi airport comprising of landing and parking charges and user development fee.
Airlines have bitterly opposed the increase at Delhi since its impacts their operating costs. "The increase in airport charges do not commensurate with yield and revenue we generate from Delhi. We are unable to raise fares because of competition and if India wants to encourage more airlines to fly it should keep the charges reasonable,'' said a India head of foreign airline.
"In the past three months we have seen passenger demand drop with rise in fares. If Mumbai airport hikes its tariff it will have a significant impact on demand. Passenger demand could fall. A staggered increase in tariff would be more suited than one time 660% hike as sought by Mumbai airport,'' said Sharat Dhall, president-online of travel portal Yatra.com.
In FY12 Mumbai airport handled 30.75 million passengers and together with Delhi accounts for about 40% of air traffic. Mumbai airport reported a net profit of Rs 183.76 crore as against Rs 197 crore in previous year.
While Mumbai airport spokesperson refused to comment sources said AERA will finalise a consultation paper on the proposal. The regulator will consider Mumbai airport's project cost and regulated asset base when determining tariff.
The cost of Mumbai airport development was originally pegged at Rs 9,800 crore, but it was later revised to over Rs 12,000 crore. According to MIAL, the project cost was revised because of inclusion of additional works such as construction of ATC tower, elevated airport road, widening of the Mithi river and relocation of Chhatrapati Shivaji statue.
In its earlier submissions to AERA seeking approval for levy of development fee MIAL had pointed out that raising additional equity and debt was not possible. While GVK group which runs Mumbai airport itself has been seeking an investor in its airport holding compay after increasing stake in Bangalore airport, Airport Authority of India had ruled out increasing its equity in the project while lenders had decided against increasing the exposure, MIAL had said.
Its plans to commercially exploit land surrounding the airport too have not yielded substantial results. MIAL has originally proposed to raise about Rs 1,000 crore in deposits from real estate development by March 2013 but so far the real estate development has not kicked off.