Oct 25, 2016
The International Air Transport Association (IATA) has called for an appraisal of India’s regulatory structure, particularly as it relates to taxation, public-private partnerships in airport privatization and the country’s prospects for joining the carbon offset and reduction scheme.
As aviation traffic increases “India will need to deal with the problem of infrastructure in advance or risk safety,” said IATA director general Alexandre de Juniac on his 50th day in his new position. De Juniac noted that India is one of the first countries he visited since assuming IATA’s top post. “It is not by chance, as India is one of the key markets,” he said. A recent IATA forecast projected India will surpass the UK as the world’s third largest market by 2026.
Calling the new civil aviation policy “ambitious with many positive elements,” De Juniac expressed concern that India’s new so-called regional connectivity scheme not only caps fares but also imposes an additional tax on flights between major cities to fund operations. “We understand there is a need for connectivity to small towns and cities, but the aviation sector is overburdened by taxes and charges,” he warned. “We are a nice target for charges.” Sustainable development requires a cost structure with fewer taxes, he added.
The regulatory structure remains a cause for unease as airlines face huge costs increases. “The Airport Economic Regulatory Authority [AERA] has been unable to preserve its independence sufficiently and has not been able to implement its own tariff orders, such as the one to reduce Delhi’s charges by 96 percent,” said De Juniac. “In addition, the hybrid till that has been imposed in the policy will further hit airline margins, which are 6 percent in a good year as compared to airports, which have a profit of 30 to 40 percent.”
Charges calculated in the hybrid model—more lucrative for airports—take into account all aeronautical and only 30 percent of non-aeronautical revenue, allowing the airport operator to pocket the remaining 70 percent. The single-till model considers all aeronautical and non-aeronautical revenue to determine landing and parking charges.
IATA’s angst also centers on regulation of privatized airports and the need to maintain the right balance between public and private interests and funding. “I am hard pressed to find an example where the results overall [of privatized airports] have been positive,” said De Juniac. “A private sector mindset can add value to airport projects with efficiency [and] cost effectiveness…but we need a stronger regulatory framework to ensure there is a balance struck between commercial and national interests.”
De Juniac also expressed disappointment that India did not participate as an early adopter of the carbon offset and reduction scheme for the aviation sector, even while many developing countries—such as China, Indonesia, Zambia, and Kenya—agreed to it.
India and Brazil opted out on the premise that a commitment to cap emissions growth at 2020 levels would disadvantage developing nations.