Budget 2020: Proposed cut in duty-free liquor, cigarettes to cause Rs 650 cr/year loss to airports
Mumbai, Jan 22: Indian airports are likely to incur a revenue loss of Rs 650 crore per annum and could potentially turn defaulters if the commerce ministry's proposals on the sale of liquor and cigarette at duty-free shops are accepted, an industry body warned on Tuesday.
The Association of Private Airport Operators (APAO) in a statement said that if non-aero revenues are restricted by an act of government, the new operators will find the airports unviable and may even renege on their contracts.
Flughafen Zurich AG, which is one of the largest European airport operators, has just re-entered the domestic airport space, bagging the contract for the greenfield Jewar Airport in UP while Adani group has been mandated to run six AAI-owned airports in the country.
The Commerce Ministry, as part of its proposals to the finance ministry ahead of the budget, has recommended restricting purchase of tax-free alcohol to one bottle against two at present and prohibiting completely the purchase of cigarette cartons, from one carton of 100 sticks now, at duty-free shops at the arrival area of the international airports in the country.
"Such a move will have disastrous effects on the Indian aviation industry across all stakeholders including airports, airlines, passengers and duty-free operators," the APAO said. Liquor accounts for majority of sales of duty-free operators. Vehemently opposing the proposal, the body said, "It will make their operations unviable due to firm commitments towards fixed fee and fixed expenses to be met out of lower revenue base."
Share of import of liquor for sale to arrival passengers in total import is miniscule -- 0.0213 per cent or USD 97 million of the total USD 460 billion imports, it said adding that "even doing away with entire imports will not serve any purpose."
According to the association, the proposed restrictions will lead to an increase in passenger charges, hurt airport industry and may "encourage smuggling," besides a revenue loss of about Rs 650 crore per annum at all airports. The revenue loss at airports will impact the operators' financial ratings and consequently hamper expansion plans, it said.
"DF revenues make up 15-20 per cent of the total non-aero revenues and sales of liquor and cigarettes together account for over 75-80 per cent of overall DF sales and 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," APAO warned.
It estimates that the aero charges will go up by at least around Rs 200 crore annually which will have an impact on ticket prices and may even impact the growth in passenger traffic which is already extremely subdued.
"The revenue loss will also impact the Indian airports financial performance, their rating, ability to raise funding for future expansion and could potentially lead to NPAs with banks," the Association stated. The APAO also said it expects an estimated annual loss of Rs 330 crore to the national airports operator AAI due to the proposed restrictions while it may also result in around 8,000-10,000 job losses.