Domestic airlines have opposed the proposed tariff hike charged at the national capital’s IGI Airport through a differential fee structure, citing the move as a “demand depressor”.
Accordingly, IndiGo, Air India, and airline associations, including IATA (International Air Transport Association) and the FIA (Federation of Indian Airlines) have opposed the increased aeronautical charges as well as the higher user development fees (UDF).
Tariff concerns
The airline industry has pointed out that the proposed differential tariff structure is “excessively complex” and “onerous on both passengers and airlines”, and goes against ICAO’s principle of non-discrimination in airport charges.
Currently, the Airports Economic Regulatory Authority of India (AERA) is considering Delhi International Airport Ltd’s (DIAL) proposal for the fourth control period tariff cycle of five years starting from April 1, 2024, to March 31, 2029.
The airport operator (DIAL), manages and operates the national capital’s IGI Airport under a public-private partnership (PPP) model.
As the operator of IGI Airport, DIAL has proposed higher aeronautical and non-aeronautical charges through a differential fee structure to recover expenses borne to build additional infrastructure.
Cost Burden
At a stakeholders’ meet on the issue, the airport operator informed AERA that the proposed hike in UDF is essential to support its debt repayment obligations and fund ongoing airport development projects.
On their part, the airlines and their associations have expressed concerns about the impact of the new tariff plan on business potential, as higher charges have the potential to “depress demand”.
“IATA has urged AERA to reject this complex and discriminatory tariff structure proposal involving aircraft type, flight timing, . among other variables. Further, we encourage AERA to address the differential between the domestic and international landing fees and user charges,” said Amitabh Khosla, IATA’s Country Director for India.
“We have asked AERA to moderate the proposed increase in charges, ensuring a realistic view of investments, costs and returns for the airport operator to ensure that airport users are protected.”
In contention is DIAL’s proposal to increase the average aeronautical charges and user development fee (UDF) per passenger.
Variable tariffs
The airport operator has put forth a proposal for a differential tariff structure, which would introduce variable fees based on travel class and time of departure or arrival.
Under the proposed tariff plan, the airport operator plans to front-load funds for infrastructure development by charging higher UDF rates during 2025-26 and 2026-27, followed by lower rates in subsequent years.
Currently, the landing, parking and UDF charges come to about ₹145.
The proposal calls for a higher UDF charge for international business class travellers compared to economy class passengers.
For domestic flights, different rates will apply depending on whether passengers travel during peak or non-peak hours. The peak flying hours have been designated as 5:00 am-8:55 am and 5:00 pm-8:55 pm.
The proposed UDF rates for domestic passengers during peak hours will range from ₹315 to ₹610 for embarking passengers and ₹115 to ₹210 for disembarking passengers.
In contrast, international economy class travellers will be charged between ₹430 and ₹810, while business class passengers will face fees ranging from ₹860 to ₹1,620.
Additionally, disembarking international passengers will be charged ₹280 (economy) and ₹570 (business class).
In addition to the UDF changes, the airport operator has also proposed increases to landing and parking charges for aircraft using the airport facility.
The airport operator has defended the UDF hike proposal, citing airport development and debt repayment needs.
Hike justification
Notably, DIAL’s CEO Videh Jaipuriar justified the proposed UDF hike, emphasising that economy-class travellers will be charged lower fees than business-class flyers.
Jaipuriar has argued that the revised UDF structure will help decongest the airport during peak hours and offer affordable fares during non-peak hours.
He noted that the additional revenue generated from the UDF hike will be crucial for the airport’s further development, particularly as it prepares to handle a growing number of international operations.
The operator has also highlighted its financial struggles, revealing that the airport operator has been incurring significant losses.
Estimated losses for the current financial year are expected to exceed ₹1,500 crore. The company has invested heavily in the Phase 3A expansion project, with capital expenditures totalling over ₹12,500 crore, largely financed through borrowings.
As of December 2024, DIAL’s outstanding debt stands at over ₹15,000 crore, with a significant bond repayment of $522 million due in October 2026.
However, other private airport operators such as Adani Airports supported DIAL’s proposal.
The tariff plan revision takes place once in every five years. AERA’s final order for tariff determination is expected in March 2025.
According to Jagannarayan Padmanabhan, Senior Director & Global Head (transport, mobility, and logistics) at Crisil Market Intelligence and Analytics, UDF is charged by all airport developers to take care of any capital expenditure to be incurred for the development of the aeronautical side of the airport.
“In India, we follow a hybrid till model that is UDF is charged only when there is a shortfall when revenue from aeronautical operations and part of the non-aeronautical operations does not fully compensate for the expenses to be incurred during the proposed control period. A fine balance is to be maintained so that the fee doesn’t become a burden on the passengers.”