Limiting liquor sale won't be in the right spirit, say private airports

The government’s proposal to allow passengers to buy just one liquor bottle at airport duty free shops will hurt profits and increase the cost of air travel, said industry executives and experts.

"The proposed reduction in duty-free liquor allowance from two to one bottle will be a big blow for duty-free companies and airports. Duty-free sales are an important component of non-aeronautical revenue for airports and 30 per cent of the non-aero revenue is used to cross-subsidise aeronautical charges," said a chief executive officer of a private airport. " Any increase in landing and parking charges for airlines could result in higher airfares and make air travel more expensive," added Satyan Nair, secretary-general of Association of Private Airport Operators (APAO).

The commerce ministry has recommended restricting the purchase of tax-free alcohol to one bottle at duty-free shops as part of steps to reduce import of non-essential goods, sources said. The ministry has also recommended to its finance counterpart that purchase of cigarette cartons at duty-free shops should be prohibited. These recommendations are part of proposals made by the commerce ministry for the forthcoming union budget.

Consolidated annual duty-free sales of airports across the country are estimated to be around $500 million. Delhi and Hyderabad airport earn 30 per cent and 15 per cent of non-aeronautical revenue from retail and duty-free. These two airports have their own joint venture companies managing duty-free sales while airports in Mumbai and Bengaluru have appointed concessionaires to run the store on a fixed revenue share basis. 

"Duty-free companies would have no other option but to cut down jobs and investments to survive, “ said Manishi Sanwal, former chief executive of Flemingo Travel Retail, which runs duty-free stores at twelve airports in India.

In fact, in its budget recommendation to the government APAO suggested that the duty-free allowance of liquor be raised from two bottles to four for purchase at Indian airports as this would help reduce costs for passengers and lead to enhanced revenue share to Airport Authority of India (AAI). Private airports share a portion of their revenue with the AAI.

Changes in duty-free allowance could also have an impact on upcoming investments in airports.

"Infrastructure companies have bid aggressively for new airport projects factoring a certain contribution from non-aeronautical revenue. If liquor allowance is reduced, it will impact their income and the companies will have to rework their revenue and investment model," an industry executive pointed out.