The Adani-controlled Thiruvananthapuram Airport’s projection of revenue from non-aeronautical services such as the sale of food and beverages — used to subsidise costs levied on airlines and passengers — is just a “miniscule” 12% of the norm, according to the country’s airport tariff regulator. In fact, it is only a third of what the airport earned before privatisation.
The Airports Economic Regulatory Authority (AERA) has recommended that this revenue projection should be hiked fourfold, from the ₹103 crore proposed by the airport to ₹395 crore, over a period of five years. The Adani-run airport has dismissed the AERA’s projection as “notional revenue”.
Low revenue sharing
The AERA has also questioned the manner in which the master contract for non-aeronautical services was awarded to an Adani group subsidiary, with restrictive bid criteria and “a low revenue share of 10%”.
This structure led to the airport operator reducing the mandatory 30% of non-aero revenue — which must be funnelled back for cross subsidising the costs borne by airlines and passengers — to 30% of only the 10% of revenue shared, that is, a mere 3% of the total. This arrangement will impact airport users, the AERA has said. The global airlines body, the International Air Transport Association, has also said that this formula is “not justified”.
Revising tariffs
These observations were made in a consultation paper floated by the AERA on February 12 to determine the revised tariff for the five-year control period, from April 2022 to March 2027. It invited various stakeholders, such as airlines, airports, and ground handling agencies, to submit their comments by March 15, after which it will issue a tariff order.
The Thiruvananthapuram Kerala International Airport Ltd (TKIAL) is a wholly-owned subsidiary of Adani Enterprises Ltd, which signed a concession agreement with the Airports Authority of India in January 2021 after a privatisation process to operate, manage, and develop the airport for a period of 50 years. Adani Airport Holdings Limited (AAHL), incorporated in 2019 as a 100% subsidiary of Adani Enterprises Ltd, holds eight airports in its portfolio, including TKIAL.
‘Miniscule’
The AERA noted that the non-aeronautical revenue (NAR) projected by TKIAL for the five-year period was “significantly lower” as compared to that of other public-private partnership airports such as those in Delhi, Mumbai, Bengaluru, Hyderabad, and Cochin, where it is at least 50% of the total operation and management (O&M) expenses.
While Thiruvananthapuram airport’s O&M expenses are at ₹1,752.25 crore, its non-aero revenue for the five-year period was only ₹102.76 crore, or just 12% of the norm. The AERA called this sum “miniscule”. Instead, it has recommended a sum of ₹395 crore from 2022-2027.
“This will impact the interest of the airport users, as 30% of the non-aeronautical revenue is used for cross-subsidization,” the AERA said.
Below pre-privatisation norm
Under the hybrid till mechanism for determining airport tariffs, 30% of the non-aero revenue is to be used to offset aeronautical costs such as aircraft landing and parking charges, which are paid by airlines, and passenger security fees and user development fees, levied on air travellers.
The sum of ₹102.76 crore is also about a third of what the Airports Authority of India earned as non-aeronautical revenue before Thiruvananthapuram airport was privatised; despite the effect of the COVID-19 pandemic, the airport earned a non-aeronautical revenue of ₹285.86 crore from the financial year 2016-2017 to 2020-2021.
The regulator also pointed out that while the airport operator planned to expand the passenger terminal building, as well as undertake re-alignment to create more space, “however, the airport has not proposed any incremental revenues from non-aeronautical services that may be earned from increase in space.”
Excluding competition
It has also questioned the manner in which a master concessionaire for non-aeronautical activities such as food, beverages, and retail merchandise was awarded to the holding company, Adani Airport Holding Limited (AAHL), through exaggerated bid criteria to exclude competition, such as a steep annual turnover of ₹750 crore. This was “25 times” of the figure in public procurement guidelines that require an average financial turnover to be 30% of the estimated cost.
The net worth criteria of ₹250 crore for bidders was also found to be “very restrictive” for a work value of ₹100 crore. It also found that the technical eligibility criteria seeking experience of leasing out or development of real estate with a built-up area of one lakh square metres was “too high”.
Cannot be justified: IATA
IATA, in its response, has also questioned how the Thiruvananthapuram airport has tweaked its tariff calculations to reduce the proportion of earnings from F&B and retail sales that is funnelled back to cross-subsidise other expenses. “The current arrangement significantly reduces the level of effective NAR for the tariff determination by AERA and cannot be justified,” IATA has said in its response to the consultation paper, submitted on March 12.
The TKIAL has responded to AERA’s remarks in a submission on March 13, and said that the 10% revenue share was “price discovered through open bidding” which has to be taken at face value. It has also called AERA’s proposed figure of ₹395 crore as non-aeronautical revenue as a “notional revenue” not supported under the AERA Act 2008.
