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New Tariff - Updates from Kempegowda International Airport, Bengaluru

July 4, 2014 - Bangalore, Karnataka, India

Kempegowda International Airport, Bengaluru today announced the details of the Tariff Structure determined by Airports Economic Regulatory Authority (AERA). These airport charges have been formulated within the framework of the AERA act and govern the fees charged to passengers and airlines for use of the airport for the financial years 2014-15 and 2015-16.

On the UDF - “The UDF is marginally higher this year only on account of the fact that the tariff is effective from 1st July. The way the regulatory framework defines it, the target revenue for the entire year (12 months) is recovered through the tariff chargeable during the remaining period (9 months, 1st Jul to 31st March)” said
Mr. G V Sanjay Reddy, Managing Director, BIAL.

On the home carrier advantage - “In order for these benefits to accrue to the region and to passengers, it is important that such tariffs are offered to support the growth of the airline. In so doing, a virtuous cycle is created where lower tariffs stimulate growth, and the growth lowers tariffs even further. Therefore it is important that the “Home Carrier” status is only conferred upon a carrier that commits to significant growth and more importantly agrees to base that growth out of the home airport” said Mr. G V Sanjay Reddy, Managing Director.

Minimal Impact to Passenger

The User Development Fee (UDF) has only gone up marginally compared to the ad-hoc UDF determined by MoCA in 2008. The Passenger Service Fee (PSF) which was earlier part of the UDF is now nil and combined with the UDF. The UDF which is collected as part of the airline ticket cost has been formulated in a manner that progressively reduces the cost per passenger in the second year, to the level that has been in existence for the last 6 years (Rs. 306.00 per passenger).

The table below provides a summary of the existing UDF rates and the new UDF rates as defined in the AERA BIAL tariff order 08/2014-15. These new airport charges are inclusive of the Passenger Service Fee (PSF).

For Airlines – Correction in charges comes after 10 years 

As per the concession agreement, the Landing and Parking charges were to be enhanced in line with inflation, indexed to the 2001 levels. Airline charges have been reviewed and revised for the first time in the last ten years. The current tariff determination process undertaken by AERA focuses on providing a reasonable return to the airport operators based on the investments that the airport has made in the first phase and more recently in expanding the airport and almost doubling its capacity. The tariff thus determined has enhanced the landing and parking charges to the levels that have already existed in other airports in India. BIAL having had the choice of further escalations retained the figures mentioned below.
Furthermore, for the first time in Indian Civil Aviation a Variable Tariff Plan (VTP) has been announced by BIAL that ensures flights operating during the non-peak hour actually enjoy a tariff level that is considerably lower. 

Home Carrier Advantage

BIAL is ecosystem-neutral and works with a singular objective of excelling in consistent, efficient and friendly delivery of services to develop Kempegowda International Airport, Bengaluru, as the gateway to South India.

The first and the most important step in establishing a hub is to have a ‘Home Carrier’. A home carrier brings in proven and specific significant advantages to the aviation ecosystem that cannot be expected to be delivered with the usual organic growth.

In organic growth of passenger traffic – faster growth of passenger numbers will help to reduce aeronautical charges such as UDF
Stimulate air traffic growth - expand the size of the market. Make air travel more accessible to the larger cross section of the population
Provide better and direct connectivity from the home base to more regional centres and smaller towns – promoting economic development of the home city and the markets that have been hitherto un-served by air. 
Setting up of a home base will result in employment generation, investment in MROs, Simulators, and Training Academies etc.

Following qualifying criteria have been set to ensure that the lower Tariffs are only given to airlines that can deliver the intended benefits back to the city, the airport and its traveling population:
Airline should declare Bangalore as their Home-base and accepted by Bangalore Airport as their Home-carrier
Airline has to establish its Head Quarters in Bangalore
Airline shall have the highest number of base aircraft (night parked aircraft) in Bangalore compared to any other airport in India at any point of time over the duration of the variable tariff plan, with the exception of operational exigencies.
Airline must achieve a throughput of at least 1 (one) million additional passengers (total of arrival & departure) annually, and the annual passenger volumes of the airline from Bangalore need to be the highest amongst all the other airports in India.

For the above “Home Carrier”, VTP is not exclusive to any one airline. At a given period of time there can be more than one airline qualifying for the above. There will be a quarterly evaluation for continued eligibility.

Many airports in the world, including airports in India, have always supported and provided special benefits to their home carriers. However, these have always been extended on an ad-hoc basis, largely as a result of bi-lateral negotiations behind closed doors between the airport and the airline. BIAL has for the first time ever, introduced a framework for extending these benefits to airlines in a fair, transparent, non-partisan basis.

Overall Tariff Philosophy

Airport charges cover the tariffs levied on airport users for the facilities provided. These charges which are determined and regulated by AERA, are aimed at enhancing the airport’s capability to service debt, expand, maintain and provide new facilities. Further, it will also adjust for inflation, especially since airline charges at Kempegowda International Airport, Bengaluru have remained constant for the past six years.  As India’s first Greenfield airport built on a public-private partnership model, the airport has so far levied a provisional fee while awaiting the tariff order from AERA.

The tariff has been determined using the till system, evaluating costs and recovery capabilities, after considering the substantial capacity increase at the airport from 12 million pax to 20 million pax per annum on account of terminal expansion. A single-till system has been considered for the Kempegowda International Airport, Bengaluru as this ensures a higher cash flow for the first year of implementation and reduced tariffs in the following year of operations.

Photo Caption: New Tariff - Updates from Kempegowda International Airport, Bengaluru

Source: Business Wire India


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