Airports bleeding due to declining traffic to gain by extending control period?

Kapil Kaul, Chief Executive Officer and Director, CAPA India, says extending the concession period will reduce the burden of high airport charges

Airports bleeding due to declining traffic to gain by extending control period?
A view of the Indira Gandhi International Airport in Delhi. Image courtesy: Wikimedia Commons/Flickr/Ramesh NG

The Centre for Aviation (CAPA) recently suggested that the control period (CP) for airports should be extended to eight years from the current five years.

Control Period for public-private partnership (PPP) airports is currently five years during which time the Airports Economic Regulatory Authority (AERA) decides how an airport can recover the expenditure that it will incur during this period. This basically means that AERA sets the user charges that an airport can charge to recover the money that it is planning to invest during the CP. Extending it to eight years will mean that airports will get additional time to recover their expenditures.

AERA regulates tariffs and other charges for aeronautical services provided at civilian airports with annual traffic above 15 lakh passengers. It also monitors the performance standards of services across these airports. As of March 2019, there were 35 airports that fell in this category including those run by the Airports Authority of India (AAI) and private players like the GMR group, which runs Delhi airport.

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Kapil Kaul, Chief Executive Officer and Director, CAPA India, says extending the concession period from five to eight years - though unlikely - will reduce the burden of high airport charges which is likely due to the current ongoing capex schedule.

Analysts in favour of extending the control period point out that currently almost a year-and-a-half of the five-year control period are lost in consultations with various stakeholders which actually shortens the control period during which time the airports can recover their expenditures.

The Covid-19 pandemic and the resultant lockdowns and restrictions on flying have not helped the airports either as they have been working at a much smaller percentage of their businesses as compared to the time before the pandemic struck last year.

There are, however, many who do not agree with this argument. For instance, Rajeshwar Burla, Co-Group Head and Vice President, Corporate Ratings, ICRA Limited, believes that an increase in the control period will not provide immediate liquidity relief to an airport.

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"The regulatory framework for airports allows efficient cost-recovery from user tariffs. The variations in passenger traffic (like during the Covid-19 impact) that often lead to temporary traffic decline is offset by truing-up the shortfall in the next regulatory period, albeit with a lag," he says.  

Others cite the complications in changing the duration of the control period as AERA was established by an Act of Parliament, and so, any changes that are to be made to the control period for airports that are monitored by AERA will also have to be passed by Parliament. This is a long-drawn-out and laborious process that is not likely to be finished in a hurry.

So what is the way forward for airports which are bleeding because of declined traffic numbers due to the ongoing Covid pandemic and the restrictions that it has led to on flying?

Some industry watchers suggest following what is practised in the private roads sector. The concession agreement in the private roads sector has in-built clauses that if for some reason the roads cannot be used during the course of the concession as happened during the nationwide lockdown last year, the concession period automatically gets extended for the period for which the roads remained unused.

(Cover image courtesy Wikimedia Commons/Flickr/Ramesh NG)