New tariff plan: Bangalore airport valuation to increase
Bangalore International Airport, the much talked about physical infrastructure in the city, has recently caught the attention of the civil aviation ministry, as a new tariff plan is in talks that will offer it a new edge. Operated by the GVK Group, the valuation of BIAL at Devanahalli, is likely to increase with the proposed tariff plan by the government.
According to experts, the recommended tariff will also aid GMR Infrastructure Ltd corporation which operates the Hyderabad Airport, since it is akin to Bangalore airport and have been structured on identical norms. Such a move by the government will help GVK sell its stake in the airport more conveniently, in the days to come. However, this move may hit the passengers demand adversely due to high airfares. Passengers will be less willing to board flights from the city to any other urban region due to increased fares.
A much calculated move
Market reports sell on that the Bangalore Airport was valued at Rs 4300 crore in 2011. The new tariff for Bangalore airport that is likely to shoot up its valuation, is presently underway and AERA (Airports Economic Regulatory Authority) has recommended the single-till model for it. Determination of tariff is a process, which empowers the airport to charge airlines, passengers and other vendors for the next five years.
If the new tariff plan goes unopposed and gets accepted, according to the aviation ministry GVK (the operating body of BIAL) will be entitled to a much higher valuation for the Bangalore International Airport. This is due to the reason that the proposed tariff model makes BIAL more attractive and alluring for the potential investors.
In tune with the original proposal of BIAL, under single-till policy, the domestic UDF was calculated at Rs 783 and the international UDF at Rs 1700 that was expected to come into effect by May 1, 2013. Under the dual-till policy, Rs 1729 and Rs 1700 was proposed for domestic and international passengers respectively. Any hike in airport charges is likely to have an impact on the demand curve of the passenger, and this is will not act in favor of the airlines.
Single, double and hybrid till-model
Charges for Airport are calculated based on three models- single, double and hybrid. However, the single-till model is the global preference for airports around the world, since the charges are much less under it.
Under the single till model, all kinds of airport activities such as retail and aeronautical are taken into consideration to evaluate the airport charges. As a result, the airlines are charged less. The dual-till principle, on the other hand, takes into account only flying and aeronautical related activities like landing, parking or navigation expenses. Investors and private airport operators are generally fond of the dual-till since it helps them feed on more revenue.
The Indian ministry, however, proposed the hybrid model, since it is expected to trigger the valuation of BIAL and make it more appealing to investors. For instance, in the last fiscal year, the non-aero revenue at BIAL stood at 8.6% and the non-aeronautical revenue grew to 36%. This, together with higher tariffs, is a lucrative aspect for investors to step in.
