Airports will face a loss of Rs 650 crore per annum, airfares will rise, and 8,000-10,000 people will lose jobs if the union commerce ministry's proposal to impose restrictions on duty-free sales of cigarettes and liquor goes through, Association of Private Airport Operators said.
Vehemently opposing the proposed move, the association has warned of “disastrous effects on the Indian Aviation Industry across all stakeholders.”
As passenger charges alone are never enough to fund the cost of developing and operating airports, operators depend on non-aeronautical revenue to subsidise these costs.
At most Indian airports,
duty-free revenues make up 15-20 percent of the total non-aeronautical revenues and sales of liquor and cigarettes together account for over 75-80 percent of overall duty-free sales.
Hence, airport operators will have to increase aeronautical charges or landing and parking charges leading to more costs for airlines and hence, higher airfares for passengers.
The association has estimated that the aeronautical charges will go up by at least around Rs 200 crore annually across India and will impact ticket prices as airlines pass on the costs to passengers.
State-run airport operator Airports Authority of India (AAI) is also expected to lose Rs 330 crore annually with a loss of Rs 180 crore from its own operations and Rs 150 crore due to reduction in revenue share payments from Delhi and Mumbai airport.
The feedback from the airport operators comes in the light of a proposal by commerce ministry restricting the purchase of tax-free alcohol to 1 litre from 2 litre and prohibiting the purchase of one carton of cigarettes comprising 100 sticks at duty-free shops. The proposal is believed to be currently being assessed by the finance ministry.
As liquor accounts for a majority of sales of duty-free operators, the association said that the proposed restrictions shall “kill” Indian duty-free industry as passengers will be encouraged to buy liquor and cigarettes from foreign countries. Simultaneously, this will also increase import of these goods via illicit channels and hence, may encourage smuggling of goods.
"This will result in a herculean task for Customs Authorities to check each and every passenger and there will be a shift in focus from checking contraband import gold, narcotics, etc. to liquor," the association which represents the busiest airports of the country said.
Kempegowda International Airport of Bengaluru, Cochin International Airport Limited, Delhi International Airport Limited, Goa International Airport, Rajiv Gandhi International Airport of Hyderabad, Chhatrapati Shivaji Maharaj International Airport of Mumbai and Navi Mumbai International Airport are members of Association of Private Airport Operators.
The restrictions will also lead to increase in aeronautical charges of around Rs 200 crore per annum as airport operators will look at ways to compensate the loss in non-aeronautical revenue and therefore, this may lead to higher airfares.
A case of lower revenue will also hit the financial ratings of airport operators and hence, will hamper expansion plans of airports as well.
The move will also impact the airport privatization plan of the government as the bidders had put their bids keeping in mind certain estimates from the non-aeronautical revenue segment, the association argued, adding that this may lead to a scenario where the new operators like Adani Group and Zurich airport may find airports unviable and may even “renege on their contracts.”
While Zurich airport has been awarded the contract to build, operate and develop the second airport of Delhi-NCR at Jewar, Adani Group has won the bid to operate and develop six airports of Jaipur, Lucknow, Guwahati, Trivandrum, Ahmedabad, and Mangaluru.
"The proposed move will make their (airport operators) operations unviable due to firm commitments towards fixed fee and fixed expenses to be met out of lower revenue base. It is estimated that 8,000 - 10,000 staff may lose their jobs directly and indirectly by virtue of this decision as there will be layoffs in salesforce, logistics, warehousing, transportation, shipping and finance,” the body said.
Arguing that the proposed move does not help in any way in improvement in balance of payments, the airports have said that the share of import of liquor for sale to arrival passengers in total import is minuscule at 0.0213 percent as share of liquor imports for duty-free sale account for $97 million as against country’s total import bill of $460 billion.“Even doing away with entire imports will not serve any purpose. With the same logic, the proposal will enhance the smuggling of imported liquor and encourage passengers to buy more at Departure Airports globally, resulting in higher foreign exchange outflow. Liquor import is within the overall limit of Rs 50,000 available to passengers and hence any reduction in liquor quota will result in a shift to import of other items thereby making the entire exercise to improve the balance of payments ineffective,” the association said.