Private airports body opposes reduction in duty-free allowances  01/21/2020 13:15:47  2

The Association of Private Airport Operators (APAO) has vehemently opposed the governments possible move to reduce liquor allowance and do away with the import of cigarettes.

Reacting to reports that the Ministry of Commerce and Industry (MoCI) has recommended a reduction in per passenger allowance of import of liquor on arrival at duty-free stores in all Indian airports, along with a complete ban on sale of cigarettes through duty-free stores, APAO on Tuesday said that such a move will have disastrous effects on the Indian aviation industry across all stakeholders, including airports, airlines, passengers and duty-free operators.

Estimated losses

The APAO said revenue losses at all airports was estimated at 650 crore per annum with an increase in aeronautical charges of around 200 crore per annum, which would lead to higher air ticket prices.

With an estimated annual loss to AAI of 330 crore and the loss of around 8,000-10,000 jobs, the revenue losses at airports, APAO said, would impact airport operators financial ratings, and consequently hamper expansion plans. It anticipates layoffs in the sales force, logistics, warehousing, transportation, shipping and finance.

The APAO has seven members  Kempegowda International Airport, Bengaluru; Cochin International Airport Limited; Delhi International Airport Limited (DIAL); Goa International Airport; Rajiv Gandhi International Airport, Hyderabad; Chhatrapati Shivaji Maharaj International Airport, Mumbai (MIAL); and the Navi Mumbai International Airport.

The APAO has vehemently opposed the proposed move to reduce liquor allowance from two litres to one litre, and to do away with the import of cigarettes that is presently one carton of 100 sticks, the private airports body, which had in fact in its Budget proposal sent to the government in December suggested an increase of the allowance to four litres of alcohol per passenger, said.

Aviation ecosystem hit

According to the APAO, the changes recommended by the Ministry of Commerce and Industry (MoCI)will harm the entire aviation ecosystem comprising of airports, airlines, duty-free operators and the Airports Authority of India (AAI) and does not help in any way in improvement in the balance of payments.

The same Ministry is recommending reduction in the import duty on gold to mitigate illegal imports. With the same logic, the proposal will enhance smuggling of imported liquor and encourage passengers to buy more at departure airports globally, resulting in higher foreign exchange outflow, the APAO said.

The APAOs secretary-general Satyan Nair observed that the restrictions on liquor and cigarette sales at Indian duty-free outlets will induce passengers to buy liquor and cigarettes from foreign countries, and the shift in buying from foreign airports shall kill the Indian duty-free industry.

At the same time, the restrictions will act as incentive for the import of these goods through illicit channels and will result in a Herculean task for Customs authorities to check each and every passenger, resulting in a shift in focus from checking contraband, imported gold, narcotics, etc., to [checking for] liquor, Mr. Nair said.

Non-aeronautical revenues

The APAO secretary-general said that, typically, passenger charges alone are never sufficient to cover the cost of developing and operating airports, and it is non-aeronautical revenue streams such as duty-free which subsidise these costs.

The APAO pointed out that at most Indian airports, duty-free revenues make up 15%-20% of the total non-aeronautical revenues, and sales of liquor and cigarettes together account for over 75%-80% of the overall duty-free sales. To make up the revenue loss on account of these new restrictions, the aeronautical charges will have to increase, which will have to be borne by airlines and passengers.

The APAO said it estimated that the aeronautical charges will go up by at least around 200 crore annually across India, which will have an impact on ticket prices and may even impact the growth in passenger traffic, which is already extremely subdued.

Impact on AAI

The reduction of duty-free allowance will also adversely impact the Airports Authority of India, which will not only lose revenue from the airports it operates, but also its revenue share from the Delhi and Mumbai airports. It is estimated that the AAI would lose over 330 crore  180 crore from its operations and 150 crore due to reduction in revenue share payments from DIAL and MIAL. This will reduce the AAIs ability to develop airports in remote and rural areas, and upgrade airport infrastructure and regional connectivity, Mr. Nair said.

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