Good news for flyers: Airfare for passengers flying out of Bengaluru set to plunge

Airfare for passengers flying out of Bengaluru set to plunge

Air tickets for passengers flying out of Bengaluru are set to go down with the airport regulator proposing a reduction of around 400% in the user development fee (UDF) paid by travellers.

The Airports Economic Regulatory Authority (AERA) has suggested a cut in the UDF at the Bangalore International Airport from the existing `306 per passenger, departing on domestic routes, to only `80, down to almost one-fourth. Passengers flying to international destinations may have to shell out `317 per head instead of `1,226 currently being levied, a cut of 386%. There is no UDF charge for arriving passengers at the Kempegowda International Airport.

The proposed tariff is likely to come into force from July 1 and would continue till March-end 2019 as per the consultation paper floated by AERA. The airport tariffs were due for renewal from April 2016 but took time to reach the rate determination stage. The exercise is being undertaken to set tariffs for a second control period ranging from April 1, 2016 until March 31, 2021.
Toronto-based Fairfax Financial Holdings controls the Bengaluru airport through its India-arm Fairfax India. In 2017-18, Bangalore International Airport (BIAL) served around 26 million passengers, including 4 million overseas travellers.

For the first control period (2011-16), BIAL was allowed to collect charges under a 40% shared-till revenue mechanism in place of the applicable single-till for carrying out expansion work. Under the shared-till approach, only 40% of BIAL’s non-aeronautical revenues was taken into account along with aeronautical proceeds while determining airport charges, instead of considering all non-aeronautical income applicable under the single-till model.

“The said order (first control period)… had stated that the difference in Revenue Requirement determined between Single Till and 40% Shared Revenue Till will be clawed back at the time of determination of tariff for the second control period,” AERA’s consultation stated. Interestingly, the first control, effective from July 2014, was challenged by the airport operator and is pending before the AERA’s appellate body on various grounds including the applicability of till on BIAL. However, the authority now determines tariff at major airports under the hybrid-till approach wherein 30% of non-aeronautical revenues is used to cross-subsidise aeronautical charges in line with the National Civil Aviation Policy, 2016.

Under the new proposal, the charges will be adjusted in each of the remainder tariff years. The UDF for both domestic and international passengers will see 11-18% rise in FY20 and FY21, compounded annually.

By- Arun Nayal

Source: Financial Express