Airfare to rise marginally if tariff proposal accepted

Overview

Delhi International Airport Limited (DIAL) CEO Videh Kumar Jaipuriar stated on Wednesday that if the Airports Economic Regulatory Authority (AERA) accepts the tariff proposal that DIAL submitted, the cost of tickets for travelers going to and from the airport will increase by no more than 1.5%. The largest airport in India, DIAL, which is run and managed by the GMR Group, has asked the AERA to increase the user development fee (UDF) for first-class and international business travelers over the next four years in comparison to economy and premium economy.

Marginal hike in airfare

The aeronautical tariff for IGIA for the five-year period ending March 31, 2029, is presently being determined by the Airports Economic Regulatory Authority of India (AERA). DIAL had filed a suggested tariff card as part of the process, which would have imposed costs that were much higher than the current rates. The plan sparked rumors that, should AERA approve the increased charges, flying to and from the Delhi airport might become more expensive.

However, according to DIAL, the effect on airfares is only anticipated to be slight. Given that the company has a large amount of capital expenditures and debt, the operator claims that raising tariffs is essential to its ability to stay financially viable and keep investing in the airport. Stakeholder engagements are ongoing as part of the tariff-determining process, and AERA will undoubtedly have the last word in the tariffs.

Current composition of aeronautical taxes and Recent DAIL suggestions

Airline levies such as landing and parking fees, which the carriers pay, and user development fees (UDF), which customers pay directly, are examples of aeronautical taxes that have an indirect effect on airfares.

DIAL has suggested differing usage fees for customers traveling in business and economy, with the latter being required to pay extra. Additionally, it has suggested charging more for flights that operate during morning and evening peak hours than for flights that operate at other times. This is the first time an airport operator in India has requested varying rates depending on the travel class and time. Furthermore, DIAL has suggested charging travelers traveling to Delhi an additional UDF.  At the moment, passengers must pay the UDF when they depart.

The current effective fare for passengers, both local and international, who travel straight to the airport is approximately Rs 129 per departing passenger. The UDF is set at Rs 405-610 per passenger for domestic flights in 2025-26 (FY26) and FY27, and Rs 210-315 for FY28 and FY29, according to the proposed tariff card that DIAL presented. The suggested UDF for domestic flights arriving in Delhi is Rs 140–210 per passenger in FY26 and FY27, and Rs 80–115 per passenger in FY28 and FY29. The planned UDF for international flights is much higher, at Rs 810-1,620 per leaving passenger for FY26 and FY27, and Rs 430-860 for FY28 and FY29.  The planned tax for arriving foreign passengers is Rs 150-300 for FY28 and FY29, and Rs 280-570 for FY26 and FY27.

DIAL’s estimates indicate that the proposed tariff hikes would have little effect on airfares, despite the fact that the proposed UDF hikes are clearly significant. According to Jaipuriar, DIAL’s average yield per passenger (YPP) would increase from the current Rs 145 to Rs 370. However, since airport taxes make up a minor portion of the cost, the impact on airfare would be minimal at most.

DIAL’s Debt Struggles and Potential Impact on Future Operations

Jaipuriar claims that DIAL has made significant investments in the IGIA’s development over the last 20 years, resulting in the operator’s excessively large debt. The largest expense that has prevented DIAL from being profitable is the interest paid on its debt, which has resulted in losses of about Rs 2,900 crore. This is mostly due to the fact that such major infrastructure projects necessitate frontloading capital expenditures and taking out large loans.  However, DIAL has not experienced any operational losses.

DIAL maintains that it might have to take out new loans to pay off its current debt if the projected tariff increase doesn’t happen. Jaipuriar claims the operator is sitting on more than Rs 14,000 crore in debt and that its equity is eroding. If these issues are not resolved, the DIAL’s credit ratings may suffer and its borrowing costs may rise.

According to Jaipuriar, DIAL has invested over Rs 30,000 crore in the IGIA over the last nearly two decades, with an additional Rs 25,000 crore going to the government-owned Airports Authority of India (AAI) under the revenue sharing arrangement between DIAL and AAI.

Conclusion

DIAL’s tariff hike proposal, which will have a nominal effect on airfares, is necessary to help tackle its rising debt and financial issues. The airport has invested substantially on the development of IGIA, which has cost it heavily in the form of heavy interest payments. Although DIAL has not incurred operational losses, the fee hike proposals are necessary for its financial health. The ultimate discretion is with AERA, and if the increase in tariff is rejected, DIAL may incur increased financial stress and higher interest costs.

The image added is for representation purposes only