Airlines, operators spar over airport charges

Operators support proposed hybrid till system while airlines say a shift from single till would make air travel costlier

Airport charges in India have long been a matter of contention. However, there seems to be a fresh controversy in the offing with the ministry of civil aviation proposing to shift from single till principle to hybrid till for all future airports.

The point of argument: Will the tariffs increase or decrease with the proposed change in the draft civil aviation policy?

Under the single till model, all airport activities - including aeronautical and commercial - are taken into consideration while determining the airport charges. This leads to fewer charges for the airlines which, in turn, are expected to transfer the benefits to passengers.

This contrasts with the dual till model where only aeronautical activities are taken into consideration when setting the charges. Private airport operators and investors support this system because it would help them increase their revenue.

The proposed hybrid till model is a combination of the two. While it would be more expensive than the single till model for the airlines, it would be cheaper than dual till.

Airlines say the proposed hybrid model would mean higher airport charges, making air travel more expensive. "Under single till, the aeronautical charges are the lowest as the airport is seen a single entity with all its revenue generating potential on the non-aeronautical side. That's the fairest way too because without airlines' passengers, there would be no shops, no car parks and no way to make non-aeronautical revenues," says CEO of a domestic airline.

Dual till is one end of the spectrum where no cross-subsidy happens and single till is the other extreme where any revenue (note: not profit), that is made from the non-aeronautical business, ýis fully used to subsidise tariffs.

Airport operators don't buy airlines' argument. They say hybrid till would consider a fair share of revenues from non-aeronautical services to subsidise the aeronautical tariffs. The operators claim the hybrid model would further encourage them to increase non-aeronautical revenues, ultimately leading to lower tariffs.

Operators say hybrid till is now the most popular model internationally and India should adopt it sooner than later. Auckland, Melbourne, Sydney, Rome, Copenhagen, Amsterdam, New Jersey and Athens are some of the major airports that have shifted from the single till model, say operators. While some of these airports operate under dual till and hybrid models, others function under price monitoring frameworks where the onus is on the operator to reach a consensus with the users on aeronautical charges.

Then there are airports that have progressively moved away from single till framework in recent years - Brussels, Milan, Madrid and Paris. Even Gatwick and Stansted airports, which had strongly enforced single till regulation, have now adopted a price monitoring framework, based on the UK airport regulator's recommendations.

Those supporting the hybrid till model argue that contrary to the popular belief, evidence shows that charges at single till airports are not always lower than those at hybrid or dual till airports. Charges are also influenced by characteristics of an airport (domestic versus international, hub versus regional), the nature of ownership and the way an airport is managed.

They argue that single till provides poor incentives to invest in non-aero assets or enhance non-aero services. The other big downside of the single till approach is that it creates a perverse incentive for gold-plating of assets. It also tends to curtail innovation because of disproportionate rewards on investment, and can potentially affect service quality.

Airlines don't see it that way. "Abroad, the debate is between passengers and airport operators in determining tariffs. In India, passengers have the least say. The norms in Europe vary. Also, what works in Europe may or may not work in India. India is a unique and extremely price sensitive market where aviation is still in nascent stages. Passengers will be least burdened under the single till model," says CEO of an Indian airline who has seen European markets closely.

Hectic lobbying is on from both the sides, even as the ministry is finalising the draft of new civil aviation policy. A ministry official says it's hard to estimate how charges would work in India because there is no real precedent and it would be the first time the country tries the hybrid till model.

DIFFERENT STROKES

What airlines say

• Want existing single till model where all airport activities, including aeronautical and commercial, are taken into consideration while determining airport charges
   
• Hybrid model would mean higher airport charges, making air travel more expensive
   
• An airport should be seen as a single entity with all its revenue generating potential on the non-aeronautical side
  

 

Without our passengers, there would be no non-aeronautical revenues
 

India is a price sensitive market and hybrid till system may lead to fewer passengers

What airport operators say

• Want to move towards dual till model, and support proposed hybrid till, so that some of the aeronautical activities are considered while setting the airport charges
   
• Not all non-aeronautical revenue should be used to subsidise airline tariffs
   
• Hybrid till is now the most popular model internationally
   
• Contrary to the popular belief, airport charges at single till airports are not always lower
   
• Single till provides poor incentives to invest in non-aero assets or to enhance non-aero services