 "Does AERA need more teeth to be effective?")
Devesh Agarwal, a frequent flyer, is aggrieved with his favourite airline. Agarwal, who often flies on the Bengaluru-Mumbai route, finds no option other than take a return journey as the airline only has a single red-eye flight.
The airline’s management is apologetic. The airline claims that they cannot expand frequency on the route due to severe slot constraint at the Mumbai airport. The airport, managed by the Hyderabad-based GVK group and one of the first airports to be privatised, has been unable to provide slots to airlines that wanted to expand last summer. In turn, Mumbai International Airport Limited (MIAL) officials blame the Airport Economic Regulatory Authority (AERA) for its “over regulations” that they claim has been hurting their investment plans. “There have been many flip-flops in the regulator’s decision. All of a sudden, they will fix the tariff for a control-period that will be significantly lower than our business interests,” said an MIAL official.
In a recent tariff order, the regulator waived off user development charges for the Mumbai Airport for the five-year period till 2019. Legal experts expect MIAL to challenge the order in the tribunal. In an order in December 2015, AERA proposed to slash Delhi airport charges by a whopping 96.08 per cent. Accordingly, the user development fee (UDF) would be cut to Rs 10 for each departing domestic passenger. For international travellers, it would be Rs 45 and arriving passengers would not be required to pay any fee.
It’s not only that airport operators have moved tribunal challenging AERA’s order. The airlines have similarly challenged AERA orders multiple times. The Federation of Indian Airlines (FIA), an umbrella body of the major Indian carriers, had moved court, and still fighting cases against AERA, whenever an adverse order of increasing landing charges was passed.
It has become a classic case of the regulator proposing and the government disposing. After multiple instances of its decisions being overturned by the government, India’s airport tariff regulator is seeking legal opinion to counter these setbacks. AERA is also writing to the government expressing its displeasure at these decisions.
So why do the regulator’s orders get repeatedly challenged by the players? Satyan Nair, secretary-general of Association of Private Airport Operators, says that the regulatory philosophy should be light-handed and in a manner that facilitate development of airports. “The regulator has to take steps to remove uncertainties in the tariff regulatory philosophy.”
S Machendranathan, AERA chief, feels that the regulatory body has been slow to fix its house after being set up in 2009. “The stakeholders move court to stop orders that would harm their business interests,” he says. He agrees that the tariff orders might have put the operators in a spot of bother as the fixed five-year control period was never followed.
However, the regulator feels that it is unfair to blame AERA for any loss of airport operator’s revenue. Machendranathan explains that the regulator takes significant care to ensure that the airport operator is not short of money. The tariff is based on certain parameters that take into consideration expenses, assets, return over investment and the taxes paid by the airport operator.
Typically, airport charges are comparatively higher during the initial period of the commencement of an airport’s operations. However, these charges get substantially reduced once the investment for the development is recovered.
Some aviation experts feel that the presence of a regulator will complicate things and that airlines and airport operators should be allowed to fix tariff between them. “In many western economies, the regulator plays a very limited role, and in most cases, it’s a bipartite negotiation,” says a private airport operator.
But, airlines contest this claim. A senior Air India executive argues these economies can do without a regulator as it’s not a monopoly situation, unlike in India. “In a city like London, Gatwick and Heathrow compete to attract airlines. That is not the case with Delhi or Mumbai which have a single airport.”
Airport charges have become a contentious issue for the airlines and the operators given the implications on costing for airlines and the revenues of operators. Some airline executives feel that the regulator should have more powers to implement its recommendations so that private airport operators do not delay the process by moving the courts.
Machendranthan also feels the lack of punitive powers which make it difficult for the regulator to enforce its decisions. “In countries like Australia, the regulator plays the role of negotiator, if the airlines and airport operators cannot agree on the tariff after multiple rounds of negotiations. This fear of regulation ensures positive negotiation between the two parties. Since airports are a monopoly in India, the role of regulator becomes important,” he says.
The airline’s management is apologetic. The airline claims that they cannot expand frequency on the route due to severe slot constraint at the Mumbai airport. The airport, managed by the Hyderabad-based GVK group and one of the first airports to be privatised, has been unable to provide slots to airlines that wanted to expand last summer. In turn, Mumbai International Airport Limited (MIAL) officials blame the Airport Economic Regulatory Authority (AERA) for its “over regulations” that they claim has been hurting their investment plans. “There have been many flip-flops in the regulator’s decision. All of a sudden, they will fix the tariff for a control-period that will be significantly lower than our business interests,” said an MIAL official.
In a recent tariff order, the regulator waived off user development charges for the Mumbai Airport for the five-year period till 2019. Legal experts expect MIAL to challenge the order in the tribunal. In an order in December 2015, AERA proposed to slash Delhi airport charges by a whopping 96.08 per cent. Accordingly, the user development fee (UDF) would be cut to Rs 10 for each departing domestic passenger. For international travellers, it would be Rs 45 and arriving passengers would not be required to pay any fee.
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The Delhi International Airport Limited (DIAL), run by the GMR group, similarly challenged the order and got a stay. The case is still pending.
It’s not only that airport operators have moved tribunal challenging AERA’s order. The airlines have similarly challenged AERA orders multiple times. The Federation of Indian Airlines (FIA), an umbrella body of the major Indian carriers, had moved court, and still fighting cases against AERA, whenever an adverse order of increasing landing charges was passed.
It has become a classic case of the regulator proposing and the government disposing. After multiple instances of its decisions being overturned by the government, India’s airport tariff regulator is seeking legal opinion to counter these setbacks. AERA is also writing to the government expressing its displeasure at these decisions.
So why do the regulator’s orders get repeatedly challenged by the players? Satyan Nair, secretary-general of Association of Private Airport Operators, says that the regulatory philosophy should be light-handed and in a manner that facilitate development of airports. “The regulator has to take steps to remove uncertainties in the tariff regulatory philosophy.”
S Machendranathan, AERA chief, feels that the regulatory body has been slow to fix its house after being set up in 2009. “The stakeholders move court to stop orders that would harm their business interests,” he says. He agrees that the tariff orders might have put the operators in a spot of bother as the fixed five-year control period was never followed.
However, the regulator feels that it is unfair to blame AERA for any loss of airport operator’s revenue. Machendranathan explains that the regulator takes significant care to ensure that the airport operator is not short of money. The tariff is based on certain parameters that take into consideration expenses, assets, return over investment and the taxes paid by the airport operator.
Typically, airport charges are comparatively higher during the initial period of the commencement of an airport’s operations. However, these charges get substantially reduced once the investment for the development is recovered.
Some aviation experts feel that the presence of a regulator will complicate things and that airlines and airport operators should be allowed to fix tariff between them. “In many western economies, the regulator plays a very limited role, and in most cases, it’s a bipartite negotiation,” says a private airport operator.
But, airlines contest this claim. A senior Air India executive argues these economies can do without a regulator as it’s not a monopoly situation, unlike in India. “In a city like London, Gatwick and Heathrow compete to attract airlines. That is not the case with Delhi or Mumbai which have a single airport.”
Airport charges have become a contentious issue for the airlines and the operators given the implications on costing for airlines and the revenues of operators. Some airline executives feel that the regulator should have more powers to implement its recommendations so that private airport operators do not delay the process by moving the courts.
Machendranthan also feels the lack of punitive powers which make it difficult for the regulator to enforce its decisions. “In countries like Australia, the regulator plays the role of negotiator, if the airlines and airport operators cannot agree on the tariff after multiple rounds of negotiations. This fear of regulation ensures positive negotiation between the two parties. Since airports are a monopoly in India, the role of regulator becomes important,” he says.