Airlines, brace yourselves: Delhi Airport to hike service charges by 340%

After the travails of last year, this year isn’t turning out to be any better for the beleaguered aviation industry.

It was an especially bad start for Kingfisher Airlines, which the regulator, in an internal report, suggested should be shut down because of safety concerns. The airline has been struggling with a severe cash crunch since the last quarter of 2011.

That was followed by the grim news that Delhi Airport is likely to raise tariffs by a whopping 340 percent across two years, starting 1 April this year, according to a reportin Mint. These charges are applied for aircraft landing and parking, ground safety and handling services for passengers and cargo and fuel supply for aircraft.

[caption id=“attachment_173270” align=“alignleft” width=“380” caption=“Hike in airport tariffs will aggravate the pain of the airline industry, which is expected to post a combined loss of $2.5 billion in the year ending March 2012. Reuters”]  [/caption]

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That will surely affect the operations of low-cost airlines, most of which operate mainly out of Delhi, according to exports.

“All the low-fare carriers in India such as IndiGo, SpiceJet, JetLite are based out of Delhi and their major cost will be at Delhi airport,” Suresh Nair, country head of Air Asia, told Mint.“Even without the proposed increase, Delhi is 40 percent more expensive that the Kuala Lumpur low-cost airline terminal Air Asia uses.”

Air Asia, a Malaysia-headquartered low-cost carrier, pulled out of Hyderabad airport last year after the airport increased charges.

The hike in airport tariffs will aggravate the pain of the airline industry, which is expected to post a combined loss of $2.5 billion in the year ending March 2012, according to the Centre for Asia Pacific Aviation.

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There is little doubt that India presents an extremely challenging operating environment for airlines. Fuel costs and other costs related to operations are much higher than in the rest of the world, with the result that most airlines are unable to make profits.

Low-cost carriers have been affected the most since they have discovered that there is nothing low cost about operating an airline in India. The only thing low cost (so far) has been the price of tickets, which has seen intense competition led by Air India.

The sagging state-run carrier, in a bid to woo passengers, has been offering tickets at below-cost prices, forcing rivals to do the same to the detriment of the entire industry.

Now, however, faced with increasingly rising costs, airlines might have no choice but to raise ticket prices. The fact that Kingfisher has cut down routes and flights will also add to pressure on fares.

Higher prices, however, might discourage passengers from using airlines too frequently. That will, in turn, affect revenues and profits of airlines.

The sad part is, nothing seems likely to change in the near future. The proposal to introduce foreign direct investment in airlines, which could have provided a financial lifeline, has been quietly placed on the backburner after the government’s humiliating U-turn on FDI in multi-brand retail.

Not exactly a happy year for either passengers or airlines.