New model to make air travel affordable

In a bid to encourage increased private investment, the government on Tuesday proposed a new transaction structure for building future greenfield airports that will make air travel more affordable and address concerns about disputes related to tariff.

The draft proposal was unveiled by Civil Aviation Minister Suresh Prabhu here. Under the proposed financial model, the concession fee given by the airport operator to the concessioning authority will be based on a 'per passenger aeronautical model'.

"New transaction structure for future greenfield airports is being proposed under NABH Nirmaan 2018. Its guiding principles are affordability, sustainability and predictability...The passenger-based model will be the base of the bidding process," Prabhu said. Currently, the transaction structure for airports, run under joint venture route, is based on revenue sharing model.

An official statement said the 'Maximum Blended Aeronautical Yield' (MBAY) in terms of rupee per passenger will be pre-determined by the Concessioning Authority at the beginning of the Concession Period. It shall undergo minor adjustments to account for inflation and certain eventualities over the Concession Period.

As per the proposed model, the aeronautical collections by the airport operator like landing and parking charges when measured per passenger basis will be a maximum of Rs 400. The airport operator has to give Rs 20 per passenger per year to the concessioning authority, plus an additional amount as the concession fee.

"It is this additional amount of concession fee which will be the biddable parameter. The additional amount could range from Rs 10 to Rs 50 depending on how attractive the concession is. The concession period will be 40 years," Civil Aviation Secretary R N Choubey explained.

"With the MBAY capped, future airports in India will be simple, functional and cost-efficient. There will be no incentive to enhance Capex and Opex to demand higher tariffs. The era of high revenue share (30-50%) for the Concessioning Authority may end. All these, along with growing traffic and increased competition among airports will bring down the cost to passengers. By linking Concession Fee to number of passengers, the disagreements around 'gross revenue' and the risk of 'revenue leakage' will be significantly reduced," the statement said.