News Backgrounder
Alarm bells triggered as India debates air rights sell off
April 1st 2016
An Indian government policy change that would allow auctioning of air traffic rights, an initiative that would create a precedent in the global industry, has drawn flak from the International Air Transport Association (IATA). Read More »
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Last month, IATA’s director general, Tony Tyler, warned India’s Civil Aviation Minister, Ashok Gajapathi Raju, and Aviation Secretary, R N Choubey, in a letter, that if the proposal was approved, it could be anti-competitive and put the industry in the hands of those with the deepest pockets.
“They (countries) don’t do it for very good reasons. If you auction traffic rights the consequences will be very hard to predict, but one of them would be the concentration of the market in a few powerful hands,” he said. “The only people who will be able to afford to buy traffic rights will be the ones already making lots of money.”
The auctioning of air traffic rights is part of the Indian government’s new draft aviation policy, which is in the final stages of review. But it was not the only aspect of the policy Tyler questioned in his correspondence with India’s aviation policy makers.
He also raised concerns about a proposed 2% levy on air tickets, which is intended to fund regional air connectivity, and a plan to use a dual or multiple till for setting airport charges.
India is a very expensive place to operate, said Tyler, and the proposed 2% levy for funding regional connectivity will add about US$350 million to the running costs of local airlines. “In the end, the airlines will pay because of the competitive market. Fares are set in the market. The amount the passenger pays is set in the market. It will be a real drain, and a financial strain, on airlines in India.”
IATA also objected to a proposed new system for setting airport charges, the dual till model.
Under the dual till model, the airport operator adds a part of non-aeronautical revenue from duty-free shops, hotels, restaurants, among other sources of income, and the total revenue from landing, parking and ground handling fees to determine total earnings. The aeronautical rates are then assessed on these total earnings.
A single till system assesses an airline’s total revenues from non-aeronautical operations. Shops, real estate development and car parking are taken into consideration when determining user charges for passengers and airlines.
On the dual till approach for deciding airport charges, Tyler said the Airports Economic Regulatory Authority (AERA) and not the government should decide which till system should be used.
“The AERA and the Ministry of Finance itself support a single till approach, which is certainly the one IATA believes is the correct way to move forward in this area,” said Tyler.
He said airport regulation is a very complicated issue and involved several factors including rate of return, the sort of till used and the amount of investment required. “There are a lot of different elements in there and it is wrong just to take one of them and regulate it,” he said.
Despite IATA’s criticisms about some elements of the proposed aviation policy, Tyler said he was excited about the prospects for Indian aviation and praised the government for a new aviation strategy that was headed in the right direction.
“We see the potential for 350 million passengers in the Indian market by 2034. We see enormous potential for airlines and for aviation in connecting the Indian economy within India and the world,” he said.
“But to do that the government needs the right policy approaches, which are to embrace partnerships and deep consultation with the industry. We all want the same thing in the end. If the government can consult with the industry and talk to the experts, we can do this together.”
