The Indian government has approved a ten per cent increase in aeronautical charges at 84 airports across India operated by the state owned Airports Authority of India (AAI).
This at a time when airports across Asia and in many parts of the world, are reducing airport and passenger charges to stimulate air travel.
These charges include landing, parking and terminal area navigation fees that airlines pay for using airports. Naturally, one should expect the airlines will pass on the costs to us passengers, in the form of higher fares, but at a time when airlines globally are in meltdown, will they be able to ? Conveniently, the ministry expect airlines to absorb the increases. They are already bleeding so what difference will a little more make.
Since the start of this year, the Civil Aviation ministry headed by Mr. Praful Patel, has approved increases in aeronautical charges at the now privately operated brownfield airports at Mumbai and Delhi, which account for close to 60 per cent of India's total air traffic.
The three privately operated greenfield airports at Bangalore, Kochi, and Hyderabad can also be expected to increase their charges, since they are allowed, by contract, to charge what AAI charges.
The government is also expected to clear AAI's proposal for charging development fees from departing passengers at places like Thiruchirapalli, Trivandrum, Goa, Amritsar and Ahmedabad. Reflecting a warped thinking at the ministry, as demonstrated by the exorbitant fee differential between domestic and international passengers, we can be certain that airports with higher international traffic will have their development fee proposal cleared cleared first.
Airport developers claim a resource crunch in implementing their development plans during the current economic slowdown. The sharp fall in passengers and freight have affected revenue and business plans. Thanks to its lopsided planning, the government has created monopolies and cartels out of airports. Let us not forget, this is the same government which screamed "cartelisation", just two weeks ago, when private airlines raised their fares.
Risks are inherent in any business, and in a competitive scenario economic downturns are great drivers of efficiency maximisation, leaner organisations and cost effective operations.
Indian passengers have no problem paying for facilities -- once they are built; but asking us to pay for them in advance and cover the business risks of these monopoly airport operators is not acceptable. Instead of protecting passengers, the government is only aiding this huge cartel of monopolies called airport operators.
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The airport operators at Delhi and Mumbai airports have a mantra as far us passengers go. "Heads I win, tails you lose"
After a messy process, in May 2006, the Delhi Indira Gandhi International Airport (IGIA) was handed over to the Delhi International Airport Ltd. (DIAL) consortium led by the GMR group, for modernising, handling and management. GMR won the bid for by promising to share 46% of the airport’s top-line revenue with the current owner Airports Authority of India (AAI).
DIAL estimates for their master plan was Rs 8,975 crore ($1.8 billion). Funds were to be raised by a combination of equity, borrowings and Rs. 2,739 crore ($476 million) refundable security deposits on commercial property development of what was called a “hospitality district”.
Through the middle of 2006 till the latter half of 2007, DIAL tried, what can only be charitably described as a very devious method, to reduce the revenue paid to AAI as part of their 46% revenue share. In short, DIAL demanded astronomical deposits upfront from bidders for the real estate project, in return for a reduction in long term rent, and then contended these deposits were not income, and therefore need not be shared with AAI. For full and gory details I refer you to Sunil Jain’s article “Mr. 20 per cent” in the Business Standard. Since this scheme would have cut AAI’s revenue share by almost half, it confronted DIAL and forced the consortium to put its plans on hold.
This delay cost DIAL dearly. By the time all disputes were settled in late 2007, the property market collapsed, and along with it the grandiose plans of raising the required Rs. 2,739 crore from security deposits, without which the bankers would not lend any more money.
Hanging the upcoming 2010 Commonwealth Games as a Damocles sword, DIAL quickly ran to their friends in the Indian Civil Aviation ministry for help, and help they did.
On February 10, the government approved a levy of an "Airport Development Fee" (ADF) by DIAL. From March 1, we passengers are forced to pay ADF at the rate of Rs 200 per domestic passenger and Rs 1,300 per passenger travelling abroad, totalling a whopping Rs. 1827 crores ($366 million) over three years. This, keep in mind, is on top of a recent 10% increase in fees the airport charges airlines, which is ultimately passed on to us passengers.
In a "me-too" move, fellow brown-field airport operator, GVK led Mumbai International Airport Ltd. (MIAL), seized the opportunity to gain a bonanza, and has obtained approval for levy of an ADF, again, on top of a recent hike of airport charges levied on airlines, which, by the way, was used by DIAL as justification for demanding a hike.
In a totally unjustified move, the government today approved levying an ADF at Mumbai Chhatrapati Shivaji International Airport (CSIA). Rs. 100 will be charged from every outbound domestic passenger and Rs. 600 from each international passenger, effective April 1, 2009, totalling Rs. 1,543 crores ($309 million) over the next four years.
Forget the fact that MIAL is facing no "commonwealth games" type deadline, or that they have till date, spent less than one-third of what DIAL has already spent on developing the airport.
Unfortunately, this is a slippery slope the Government put itself and us passengers on, when they approved ADF for DIAL. They have no grounds for refusing MIAL's demands.
The justification offered by DIAL, MIAL, and their friends in the ministry, is the ADF will be used to develop aeronautical assets which will be transferred back to AAI upon completion of the lease. Never mind that the lease is for 58 years, and passengers are being asked to pay for future assets that they may not use, and this asset creation is precisely what the property development concession rights were meant to cover ???
When both these airport operators bid for the respective airports, there was no condition or plan for the levy of ADF. It was never part of the initial bidding conditions, process or bid documents.
Had the property market not collapsed, DIAL and MIAL would have made a killing on the property development. In such a scenario would DIAL and MIAL have paid an amount equal to the ADF back to passengers as they share of gain? If the economic tide has turned, it a business risk and ultimately DIAL's and MIAL's problem.
It all boils down to DIAL and MIAL raising the collateral money insisted by the banks who have agreed to lend the remaining amount. Unfortunately the shareholders of DIAL and MIAL do not have the financial strength to do.
They have a means to raise the funds, like any other company in the world. They can sell their shares and raise equity. So DIAL and MIAL can sell shares to us passengers against the ADF.
If airport operators want us passengers to bear their share of the risks, it is only fair that we be given our share in the rewards.
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The Supreme Court today stayed the Karnataka High Court judgement that quashed the decision of Bangalore International Airport Ltd. (BIAL), operator of the Bengaluru International Airport at Bangalore, to award the duty-free shops contract to Nuance Group AG of Switzerland and Shoppers Stop.
On December 19 2008, on a plea by Flemingo Duty Free Shops Pvt. Ltd., the Karnataka High Court had set aside the award and directed BIAL to reissue fresh tender documents within 45 days.
Dubai-based travel retail business company, Flemingo, which operates duty-free shops at airports and sea ports, had alleged that it was wrongly excluded from the tender for setting up duty-free shops at the new airport.
A bench headed by Justice K G Balakrishnan asked the parties to maintain status quo till February 16, the notified date of hearing.
Earlier, the apex court stayed the Bombay High Court judgement that had allowed a similar petition of Flemingo Duty Free Shops Pvt. Ltd. and quashed a similar decision of Mumbai International Airport Ltd. (MIAL), operator of Mumbai's Chhatrapati Shivaji International Airport, to award the duty-free shops contract to DFS India.
Both High Courts had held that MIAL and BIAL were a 'state' within the meaning of Article 12 of the Constitution.
Both the Nuance Group and DFS Ventures, Singapore had challenged the respective High Courts' rulings.
This case of significance to both airport's private operators. If the Supreme Court upholds the lower courts' decisions, it will require operators to follow public tendering processes, which airport operators feel will hamper their ability to make procurement decisions.
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My post The world's most delayed and most punctual airports, seems to have ignited a media frenzy within India.
Times of India carried snippets from the article Sunday 11th January, which became a national story, and was picked up later that morning by the TV networks.
A lot of Bangalore Aviation readers have been asking me questions relating to the article.
Why are Mumbai and Delhi airports at the top of the list of delayed flight arrivals?
It is actually very simple. At both airports the number of flights arriving per hour exceeds the capacity of the runways. At Mumbai, there are two runways, but they cross each other in an X shape. There are also limitations of taxiways, but, I will not go into such a high level of detail.
Bottom line, the capacity of Mumbai airport is 30 landings per hour, but with a little juggling and using the crossing runway, the Mumbai Air Traffic Control (ATC) is able to push the number up to 36 per hour. But the demand is even higher.
It's a similar situation with Delhi airport, which inaugurated a new third runway, plagued with problems. Drainage, non-functional aeronautical aids, and to top it off, some faceless bureaucrat, probably encouraged by a narcissist politician, allowed a 40 feet (4 storey) tall statue of Lord Shiva along the path of the runway. Now the new runway cannot be used by the Airbus A380, the very aircraft it was specifically built for, till that statue is removed. And we all know, how very impossible that is, in a religiously charged India.
Add to this excess demand and weather. Fog in Delhi, and rains in Mumbai. The system is so over-capacity that it provides the ATC absolutely no room to manoeuvre during bad weather, and flights get even more delayed.
If Mumbai and Delhi are at the top of the list for delayed arrivals, why are they not at the top of the list for delayed departures?
The clock gets reset to the revised departure time, due to the late arrival of the incoming aircraft. The departure time is measured when the airplane doors are closed. Airlines get their passengers on board, close the doors, and then wait for taxi clearance. Due to the traffic jam in the skies, you will find that your aircraft will taxi, and then wait in line, for a long time, to take-off.
Why is Bengaluru International Airport (BIA) at rank 4 in the Top 5 list of most delayed arrivals? Is it not an efficient airport?
BIA is an efficient airport, no doubt. I suspect three reasons. One is thrust on to BIA, one is temporary, and one needs to be addressed.
One, and this is the biggest reason, as the airport spokesperson said, Bangalore's dependence on trunk routes. i.e. Bangalore-Mumbai, Bangalore-Delhi, and more especially after the increase in fares, which dropped the bottom out of regional flights. Flights from Mumbai and Delhi, may leave their gate/stand on time, but get delayed in take-off. So the blame lands up on Bangalore's door-step for the late arrival. It is unfair.
Two, last year, when the new airport opened, there was massive disruption for about a month. I suspect this brought down the overall performance of Bangalore. On the positive side, everyone at BIA have been working very hard, and the kinks have been solved. I suspect Bangalore will be off the list in 2009.
Third, and I have highlighted it in my original post, is weather. Bangalore suffers from fog, between 15th November to 15th February, typically between 3AM and 8:30AM. 6AM to 10AM is peak period, and the fog impacts the performance of arriving and departing aircraft. While fog is limited to a short period in the year, the disruptions are significant enough, to lower the overall annual performance.
The Instrument Landing System at BIA, has been installed incorrectly. Despite being CAT-II capable, which will permit operations in poorer visibility conditions, the equipment is forced to function at CAT-I level. (For a better understanding of CAT levels please read this Wikipedia article).
How, the Airports Authority of India (AAI), which is responsible for the equipment, and has installed over a hundred ILS systems, managed this blunder, is beyond me. Repairs of the installation were to have been carried out during the first six months of operations, i.e. by end November 2008, but given the delays this winter season, they obviously have not.
What is the solution?
We all want to fly during the peak hours of 6AM and 10AM and 5PM and 7PM.
While domestic traffic has declined, the demand during peak hours is sharper. Now that the economy is in the tank, we want to reduce our costs and try and complete all our work in a day trip, or at least not waste the working hours, flying.
Mumbai and Delhi are still way too overloaded, especially during the peak period.
With overall reduction in air traffic and shrinking incomes, there is pressure from the private airport operators MIAL and DIAL, on the ATC to accommodate more flights, as they scramble to earn more income. I cannot fault them. They are in business for profit, not charity, but this adds to the problem.
This economic connection, is the single path to solutions.
The first part of the solution lies with the Directorate General for Civil Aviation (DGCA). It is time they woke up from their slumber, audit the airports, and allocate the maximum number of flights per hour. Any airport scheduling more flights than capacity pays a hefty fine, and is open to punitive law suits from delayed passengers for permitting flights greater than capacity.
To help the airports demand the needed reductions from the airlines, the second part of the solution lies in changing the system of flight slot allocations. India follows a system of "historic rights", i.e. once an airline gets a slot, then they continue to get that slot, till such time they revoke it. Which no airline ever does. Move to system of performance based allocation :
- If a flight gets delayed, they loose their place in the queue. Similar to an appointment at the doctor, wait for the next appointment to open up, rather than delaying everyone in the queue behind you.
- Mr. Airline you want a premium landing or take-off slot, pay a premium for it. Hey, but that is unfair to the low cost airlines ? Sorry, but life is not fair.
Third, and this is partly under way, optimise the air traffic control system. Implement Gagan and the GBAS systems fast. Encourage airlines to use Performance Based Navigation (PBN), and reward those who do.
In the mean time, force the air traffic controllers and pilots to perform efficiently. Right now, the system calls for a two minute separation or 5 nautical miles (10km). World over airports function with a 90 second separation, some even at 60 seconds. A 25 per cent reduction in separation from 120 seconds to 90 seconds at the major airports, will result in a 50 per cent increase in capacity from 30 movements to 45 movements.
Pilots don't react fast enough in the sky, SPIN 'EM. They can land nice and easy sometime before the day is out. Foreign pilots cannot speak English fluently, DE-CERTIFY 'EM. They can fly in less congestion countries. Controllers cannot cope, TRANSFER 'EM. Let them go to nice and easy Jabalpur, Guwahati, or one of the smaller airports in India.
We risk a future similar to La Guardia airport, where the US Department of Transportation is forcing slot reductions, since the system cannot cope any more.
It is time for some radical solutions to this creaking system.
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At a time when airport authorities in Singapore, Thailand, Korea, and Taiwan, are reducing their airport charges to stimulate air travel, travellers flying from Chhatrapati Shivaji International Airport (CSIA), Mumbai will pay more soon.
The Ministry of Civil Aviation (MoCA) has recently sent a letter to the GVK promoted, Mumbai International Airport Limited (MIAL), allowing the airport operator to increase aeronautical charges by ten per cent which in turn will be passed on to the passengers.
Aeronautical charges comprise Passenger Service Fee (PSF) currently at Rs. 225, and aircraft landing and parking charges. According to a report in Economic Times, certain sources informed that MoCA has allowed MIAL to increase aeronautical charges by ten per cent effective January 1, 2009. MIAL has already issued a circular in this regard to airlines. A ten per cent increase in airport charges will add to about Rs 35 crore to the airport’s total annual revenue.
Passengers can expect a similar hike at New Delhi's Indira Gandhi International Airport operator, GMR promoted, Delhi International Airport Limited (DIAL).
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In the Rajya Sabha today, the Minister for Civil Aviation, Shri Praful Patel informed the Parliament today that airport developers both in public and private sectors are not getting their dues from the airlines on time which is causing them financial problems.
As per the minister's statement in the house
In respect of Airports Authority of India’s (AAI), the dues, in Rs. Crore (Rs. 5 Cr = $1 million) of defaulting airlines are :
NACIL-Air India - 739.50; Kingfisher Airlines / Kingfisher Red - 286.62; Jet Airways / Jetlite - 32.78; Spicejet - 15.76; Paramount Airways - 12.50; Interglobe Aviation - 6.00; Go Air - 8.81. Total dues are Rs. 1,101.87 Cr.
Mumbai International Airport’s dues are as follows: NACIL-Air India - 52.90; Kingfisher Airlines / Kingfisher Red - 14.11; Jet Airways / Jet Lite - 7.51; Go Airlines - 2.29; Air Indian Charters Ltd - 0.80; Lufthansa Airlines - 0.80; Malaysia Airlines - 0.63; Emirates - 0.61;
Indigo Airlines - 0.57; Spicejet Ltd - 0.55; Singapore Airlines - 0.42; British Airways - 0.30;
Kuwait Airways - 0.27; KLM Royal Dutch Airlines - 0.26; Airlines Allied Services - 0.25; Kenya Airways - 0.25; El-al Israel Airlines - 0.23; Qatar Airways - 0.21; Saudi Arabian Airlines - 0.20; Ethiopian Airlines - 0.20; Other airlines - 3.18. Total dues are Rs. 86.54 Cr.
The total dues of airlines as on date owed to Hyderabad International Airport Limited (HIAL) is Rs. 48.75 Cr.
The total dues of airlines as on 15.12.2008 on Delhi International Airport Limited (DIAL) is Rs. 84.50 Cr.
The total dues of airlines on Bangalore International Airport Limited (BIAL) is Rs.41 Cr.
Cochin International Airport Limited (CIAL) have also informed that there are some dues from airlines, but it appears no details are provided.
Government has given instructions to AAI to take all possible steps including legal action, if warranted against the defaulting airlines.
Just two airlines, Air India and Kingfisher owe 93% of total AAI dues, and 80.5% of MIAL dues. I suspect the trends at other airports will be similar.Without political directive, it is career suicide for anybody at AAI, which is a government body, to even dream about, let alone execute, pursuing recovery operations against Air India, which is a government owned entity. In any case, Air India, just does not have the money. It is waiting for Sugar-Daddy a.k.a. Government of India to bail it out.
In case of Kingfisher, I am completely stupified. Dr. Mallya runs a global empire, he is astute and I am told, an extremely driven man. Aviation and Kingfisher, the airline, is his passion. What has gone wrong ? Have the liabilities of the Air Deccan merger finally caught up ?
Rs. 1,100+ Crores is not a trivial amount. This is money of the taxpayers of India, that should be put to better use, than left as overdues.
How seriously can we treat the minister's statement about instructing AAI to use all possible means to recover their dues ? It will be a simple step for AAI. All they have to do is stop the airlines from landing at their airfields, and seize the aircraft already parked. It will probably take, all of 2 seconds, before holy hell will break loose.
All the airport operators are suffering due to the economic crisis, and the subsequent reduction in overall aviation activity, be it flights, passengers or cargo.
AAI revenue has decreased by Rs. 228 Cr., April to September 2008, as compared to the corresponding period in 2007. MIAL's aeronautical revenue is down Rs. 79.83 Cr., April, 2008 to November, 2008. DIAL is down Rs. 50 Cr., and is already begging for financial assistance for its ambitious expansion plans, needed to meet the requirement of the Commonwealth Games 2010. HIAL has seen a total revenue decline by 15%. BIAL is down, but has not provided figures. The only other major airport operator, CIAL, has not been affected significantly, due to the constant middle east traffic, the one area of global aviation that is still escaping the global meltdown.
Overdues impose unneeded operational expenses on airport operators, and that ultimately comes back to passengers in the form of decreased services, delayed facilities, and higher fees. MIAL has been given permission for a 10% across the board rate hikes at Mumbai, Delhi can be expected to follow very soon.
Mr. Praful Patel is in difficult position of being the "boss" of both the defaulting airline and the airport operator owed the money. He has to make up his mind, and fast.
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