User fees from Feb 1 to raise cost of flights from Mumbai

Written by fe Bureau | New Delhi | Updated: Jan 17 2013, 08:28am hrs
Flying out of Mumbai is set to cost more with the Airports Economic Regulatory Authority (AERA) allowing Mumbai International Airport Ltd (MIAL) to levy a user development fee (UDF) on every departing passenger with effect from February 1.

From next month, R692 will be levied on every departing international passenger while R346 will be levied on every departing domestic passenger. The fees will come down to R548 (international) and R274 (domestic) from April.

The UDF will be in addition to the existing Airport Development Fee (ADF) of R100 per departing domestic passenger and R600 per departing international passenger.

This is the first UDF which has been introduced during the first regulatory period (2009-10 to 2013-14), said an MIAL spokesperson. To compensate for the first four years, UDF has been kept higher for the first two months.

Airlines pay a UDF to the airport operator for parking and landing facilities and pass it on to passengers. For the airport operator, UDF is a revenue enhancement measure, allowing it to get a fair return on investments. Since UDF is considered an aeronautical tariff, it does not need to be shared with the government, but Airports Authority of India which has a 26% stake in MIAL will continue to get its share.

With MIAL charging UDF, it joins Delhi International Airport Ltd where the charges are R600 to R1,200 for departing international passengers and R490 to R990 for arriving international passengers. Departing domestic passengers are charged R260 to R520 while arriving domestic passengers are charged R220 to R440 depending on the route length.

AERA in its order dated January 15 noted that UDF has sound legal basis.

It is observed that UDF is a revenue enhancing measure in order to allow a fair rate of return on the investments made in an airport, the order stated. UDF thus is not in the nature of tax/cess and hence is not a levy towards compulsory extraction of money. Hence, the proposal for levy of UDF has sound legal basis, it said.

MIAL is operated by a GVK-led consortium. GVK Airport Holding, ACSA Global and Bid Services Division (Mauritius) hold 74% stake in MIAL while Airports Authority of India holds the remaining 26% stake.

MIAL took over the Mumbai airport from May 3, 2006 as per an Operation, Management and Development Agreement (OMDA) agreement for 30 years. The first regulatory period for levying of UDF began from fiscal year 2009-10 and was up to 2013-14. However, the airport till now was only charging ADF and not UDF.

Aviation sector experts had predicted that the benefits from scrapping and capping ADF will be negated by an increase in UDF.

Removing ADF may actually make the cost of air travel higher for the passenger, Amber Dubey, partner and head-aviation at global consultancy firm KPMG had said earlier. As per the project agreements, the operator is allowed to recover the entire funding gap plus returns on the debt or equity plus additional taxes, if any from the passengers. That is what will make airport tariffs higher, he had said.