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Tuesday, 21 January, 2020, 16 : 45 PM [IST]

APAO estimates loss of INR 200 crore on reducing limit of liquor at airport Duty Free

Opposing the move to reduce liquor allowance at airport duty free and a blanket ban on sale of cigarettes through these shops, the Association of Private Airport Operators (APAO) believes that this will lead to an annual loss of INR 200 crore annually and result in surge of airfares. “Such a move will have disastrous effects on the Indian aviation industry impacting all stakeholders including airports, airlines, passengers and duty free operators,” the association said in a press statement.

APAO has vehemently opposed the proposed move to reduce liquor allowance from 2 litres to 1 litre and to do away with import of cigarettes presently one carton of 100 sticks.

 “At most Indian airports, Duty Free revenues make up 15-20% of the total non-aero revenues and sales of liquor and cigarettes together account for over 75-80% of overall Duty Free 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 estimates that the Aero Charges will go up by at least around INR 200 crores annually across India which will adversely affect ticket prices, and may even impact the growth in passenger traffic which is already extremely subdued.”

APAO believes that this move will harm the entire aviation ecosystem comprising airports, airlines, duty free operators and Airports Authority of India, and does not help in any way in improvement in balance of payments.

“Share of import of liquor for sale to arrival passengers in total import is miniscule i.e. 0.0213%. Even doing away with entire imports will not serve any purpose. The same Ministry is recommending reduction in import duty on gold to mitigate illegal import. 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,” APAO says.

Another argument by APAO is that liquor import is within the overall limit of INR 50,000 available to passengers, and hence any reduction in liquor quota will result in shift to import of other items thereby making the entire exercise to improve balance of payments ineffective.

APAO elaborated that present limit of INR 50,000 was INR 25,000 in 2004. Considering Rupee depreciation vis-à-vis USD, of 162% during the period under consideration, in real terms limit is reduced by 23% which will further reduce considering USD inflation.

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. In the present regime of hybrid or shared mechanism adopted by AERA as per NCAP 2016, increase in non-aeronautical revenue leads to lower aeronautical tariff, thereby passing the benefit to the passengers.

The revenue loss will also impact the Indian airports financial performance, their rating, ability to raise funding and could potentially lead to NPAs with banks.

The reduction of Duty Free allowance will also adversely impact AAI which will not only lose revenue from the airports it operates, but also from the revenue share from Delhi and Mumbai airports. It is estimated that AAI would lose over INR 330 crores (INR 180 crores from its operations and INR INR crores due to reduction in revenue share payments from DIAL and MIAL). This will reduce AAI's ability to develop airports in remote and rural areas, upgrade airport infrastructure and regional connectivity which is hallmark of the NCAP 2016.

“Liquor accounts for majority of sales of duty-free operators. The proposed move will make their 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 sales force, logistics, warehousing, transportation, shipping and finance,” the association says.

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 Indian duty-free industry. At the same time, the restrictions will act as incentive for import of these goods through illicit channels and will result in a herculean task for Customs Authorities to check each and every passenger and there will be shift in focus from checking contraband import gold, narcotics, etc. to liquor.

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