Paying For Non-Existent Airports in India

Guest Posts

Cranky is on vacation, but I’ve lined up some excellent guest bloggers for you while I’m gone. Today I have Devesh Agarwal who writes the Bangalore Aviation blog. He always has great insight into Indian aviation.

At a time when airports across the Asia-Pacific region are slashing their fees in a desperate bid to attract airlines and stimulate air travel, India seems to be happily moving in a completely opposite direction.

In a blatant move to bail-out the politically well connected GMR Group’s airport operating company Delhi International Airport Limited (DIAL), the Government permitted the levy of an Airport Development Fee on all departing passengers from New Delhi’s Indira Gandhi International Airport. Domestic passengers pay Rs. 200 ($4) while international passengers pay Rs. 1,300 ($26).

The fee came about when DIAL approached the government, using the upcoming 2010 Commonwealth Games deadline as a Damocles Sword, and demanded “help” in filling a funding gap of Rs 27.4 billion ($548 million) out of the total Rs 89.75 billion ($1.795 billion) needed for upgrading the Delhi airport. Driven partly by the immediate need to have an upgraded airport, but largely by political clout, the government quickly and meekly agreed to the fee.

At the country’s commercial capital Mumbai, the GVK Groups’s airport operating company Mumbai International Airport Limited (MIAL) observed the developments at Delhi, and seized the opportunity to make a killing. They too promptly insisted on, and obtained permission, to levy the same airport development fee but of Rs. 100 ($2) and Rs. 600 ($12) on domestic and international passengers respectively. Never mind the fact that they have not even spent half of the Rs. 50 billion ($1 billion) Delhi has.

Not to be outdone by these two private airport operators, the government of India is also working on a similar fee for 35 state owned and operated airports across the country, that are being modernized. Airports whether private or state owned, are a monopoly in India and both passengers and airlines are there for the fleecing.

This fee was levied less than three months after government permitted airports across the country to raise their already high fees by another 10 per cent. Domestic airlines which are already hemorrhaging losses crossing $1 billion, will just bleed some more. Elections are to be held in May, let the next government worry about the problems.

Both the private airport operators, DIAL at Delhi and MIAL at Mumbai, won competitive bids for their privatization contracts back in 2006, and upgrading the airports was an integral part of the privatization agreement. Now, when they find themselves short of cash in an economic downturn with conservative lending, they are looking to milk passengers and airlines, instead of planning for and facing up to the business risks inherent in such long term projects. This is business with “other people’s money” carried to the extreme.

Everyone across the board, from passengers to the global airlines body International Air Transport Association (IATA), is questioning if not opposing the government’s decision. Analysts are of the opinion that the fee being charged represents the capital the private developer-operator who holds stakes in the airport is actually supposed to raise. “Why should passengers pay for privately-run airports, when they are not getting anything in return? Passengers do not have a stake in the airport.

Even officials in the government’s own Law Ministry are of the view that the privatization agreement, also known as the operations management and development agreement, between DIAL/MIAL and the government does not permit the charge of this fee.

What is absolutely perplexing–is the lack of any Public Interest Litigation by any citizen or consumer rights body of Delhi or Mumbai, to protect their rights.

Indian passengers have no problem paying for world-class facilities. In 2008, two privately developed Greenfield airports commenced operations at Hyderabad and Bangalore. These airports are allowed to charge a User Development Fee to cover costs of the airport infrastructure already developed, and is accepted by most passengers, just as airport fees are accepted by passengers anywhere else in the world.

In the case of Delhi and Mumbai, passengers are paying for the development of future facilities, which they may never use. The government – which screamed “cartelization” when airlines increased their fares in February, seems to be running the largest oligopoly of them all.

The question I raise to readers — Should passengers be expected pay for non-existent airports?

The author Devesh Agarwal is a Director at Infomart, a Power over Ethernet company based in India. He is a winner of the Lockheed Martin 2008 Innovation silver medal, and authors the Bangalore Aviation blog. An avid wine enthusiast, he has also authored a book called Wines Demystified which can be download free of charge here.

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6 comments on “Paying For Non-Existent Airports in India

  1. My one experience traveling to India included the Delhi airport. Midnight arrival, mosquitors, gypsy cabs and the humidity greeted me upon arrival. For departure I was amazed at the state of the primary gateway to the country. The infrastructure and terminal facilities did not reflect in any way India’s importance to the world, being very delapidated and run down. I was so anxious to get inside my flight and away from the conditions and mosquitos again I cannot even remember if the duty free section shopping area proved any better.

    That said, I honestly don’t know if a private or government run facility is better – I only know that from my experience in 2000, unless things are different today Indira Ghandi needs a facelift in the worst way possible and in the quickest way possible and I’d pay anybody my $26 to help them get it done.

  2. I had a nice long comment to leave but it didn’t take and was lost, so he’s the short version that I can remember. :-)

    There are to many government taxes being charge now a days and what do they go to? I don’t think the governments put the money towards airport or airport issues. A big international trip can have almost USD1000.00 just in taxes. Even those cheap Ryanair type fares in Europe may be USD10.00 but the taxes on it can be over a USD100.00. That is just not right. If you went into a store to buy a USD10.00 item and they wanted to tax you a USD100.00 you wouldn’t buy it. But the governments/airlines hold you hostage if you want to fly with the taxes and fees they charge.

    I know things cost money and I don’t mind paying my fair share, but ‘fair’ is the key word.

  3. I agree with David, taxes and fees are already too large a portion of ticket prices. It would be nice for once if the price advertised were the real price. Soaking the passengers another $26 might not stop many people from coming, but it’s a slippery slope and next thing you know you’ve got LHR taxes/fees ~ a level I do consciously avoid.

  4. Agreed. We are compelled to travel for any number of reasons, from critical business down to lifelong dreams, honeymoons and family crises. And governments the world over are famous for using transport fees as budget buffers that rarely go to the people or services they are collected for.

    Rental cars and cellular services are just as bad. But our choices are limited. A land line instead of cellular service? Vonage? Snail mail?

    Instead of flying to the coast we could do it the way our forbears did. Walk. Then again there’s a reason the Oregon Trail is sometimes called one of the longest graveyards in the world.

  5. Thanks for the comments. I agree that taxes on passengers and airlines are high pretty much across the world. But the issue of paying taxes for infrastructure that has not yet been built and may never be used by the payer remains unanswered.

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