India to Reduce Airport Fees

Tuesday, 11th June 2013 at 01:38am

In a bid to liven up its sagging aviation industry, the Indian government is planning to lower airport fees at all its minor airports to attract investments.

There is a mandate in India allowing local airlines to serve smaller urban centers or towns enabling residents in far flung areas to access air transport system in a country of 1.2 billion people.

The mandate has hampered smaller airlines in India to earn a decent profit as the market size of these small cities is not big enough to sustain their operations there, compounded with exorbitant airport fees and high fuel costs.

That will change soon as the government is about to implement a fresh policy to lower airport fees at 80-strong minor airports across the country. The government hopes that the new policy would give incentives especially to small airline operators.

The project will be pilot-tested in these 80 smaller and underutilized airports and, if effective enough to attract investments, it will be expanded to include much smaller airstrips all over India thereafter.

An industry analyst, however, argued that the project won't do much to airline operators in terms of profitability and operations sustainability as most of them are also struggling from high fuel costs and other taxes levied on them.

India is among the world's biggest oil importers, crude or refined. This imported commodity accounts approximately 40% of operating costs of airlines in India. Roughly 10% of their operating costs also goes to airport-related expenses.

When the commercial aviation industry of India was deregulated almost a decade ago, it drew a lot of players resulting to a travel boom in the country. However, the boom wasn't sustained long enough as most of the airlines began to bleed at the start of the second half of the first decade of 2000s up to the present.

Kingfisher Airlines was the first casualty of the country's ailing aviation industry. In fact, the airline was never profitable since it commenced operations in 2005.

While industry players welcome the government's action, they say, nonetheless, that it's not enough to help them stem huge losses that they have accumulated over the years.

A study commissioned in 2012 found that flying to regional routes hampered growth for most of the airlines. The current policy shows that for each two flights to profitable routes such as Mumbai or Delhi, an airline has to allocate at least one flight to smaller, mostly unprofitable destinations.

The study further showed that high fuel costs was the main culprit of the airlines' inability to grow their business through aircraft acquisition or expanding their network.

That explains why the aviation industry in India is growing at a far slower rate, if not stagnating, than most of its neighbors in the region.

By: Pete Lee.