Govt's Hand in Higher Air Ticket Prices?
UDF hike by most airports in India has gone totally unreported by the media.
Came across some great insights in a recent Market Brew edition from Tatas.
It delved into how the UDF hike by most airports in India has gone totally unreported by the media.
And this should ideally be a major point of discussion.
So before we delve into what has happened, first let’s understand what’s UDF.
Think of it this way, whenever we fly on a plane, we use services at two airports.
And both those airports are operated by for-profit entities, be they government-owned or private.
Thus, every ticket we book includes a bunch of charges which actually don’t go to the airline, but to the airport operators.
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What sort of fees do they charge flyers like us?
Development fees
Aviation security fees
User development fee (UDF)
Common user terminal equipment fees (CUTE)
And the higher each of these charges is, the more the income for airport operators.
But, among all of these, UDF is one of the biggest sources of revenue generator for airports.
To raise this, Govt rules mandate that an airport must get approval from the Airports Economic Regulatory Authority.
And the funny thing? Another Govt arm, AAI also operates most of the Indian airports.
Thus, to raise UDF, Govt needs its own permission :)
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Outcome?
AAI has gone on to raise this fee for most airports it operates since the start of FY25.
Patna: Rs 660, up 223% from FY24
Kanpur: Rs 750, up 135%
Jaipur: Rs 805, up 104%
Chennai: Rs 770, up 34%
And AAI has also approved UDF hikes by other private operator-led airports.
Like Adani led Ahmedabad and Trivandrum airports have hiked UDF by 80% and 52%
GMR-run Hyderabad airport has hiked UDF by 22%
And, Fairfax-led Bangalore airport has hiked UDF by 7%
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Now combine this rise in UDF with:
The rising demand for air travel and, the pathetic lack of competition in the market. That explains what’s driving up the airfares in India.
And none of this seems like great news for the Indian flyers.
What do you think?
Best,
Jayant Mundhra
UDF is directly linked to the capex done by each airport operator. As per the scheme, they are guaranteed a certain return on the capex and accordingly, UDF is back-computed for a certain block period to deliver the return. Hence, it is computed based on the capital expenditure (approved by AAI) rather than on the government's approval.