Aug. 10 (Bloomberg) -- SpiceJet Ltd. cut plans to increase flights from New Delhi airport, India’s busiest, as a fourfold jump in user fees threatens to make new routes unviable.
The nation’s third-biggest carrier, which posted its first profit in six quarters last month, is operating four of its new Bombardier Inc. Q400 turboprops from Delhi, as against an earlier plan to fly seven, Chief Executive Officer Neil Mills said in an interview.
“The number of destinations you can serve out of Delhi is huge, but not at the charges that they have got in now,” the South African executive, 41, said at his office in Gurgaon, near the capital. “We now have a different plan.”
The carrier will add services from other cities with the planes intended for Delhi after the airport raised the charges, which the International Air Transport Association said will boost airlines’ operating costs by $400 million. SpiceJet has already increased its flights from Mumbai by 40 percent after getting some of the slots left vacant by cash-strapped Kingfisher Airlines Ltd.
Last year, GMR Group-led Delhi International Airport Ltd. sought close to a tenfold increase in airport charges to cover its operating costs and recover the money spent on modernizing the facility, including building a new terminal. India’s airport regulator approved the 346 percent increase starting May 15.
SpiceJet, controlled by billionaire Kalanithi Maran, operates 39 services a day from Mumbai and about 80 from Delhi out of its total 300 flights.
The regulator allowed the Delhi airport operator to collect 462.80 rupees, or a fixed $9.14, as user development fee from each departing domestic passenger on trips of more than 500 kilometers (210 miles) and 391.60 rupees from each arriving local passenger on trips of similar distance, according to an order posted on the Airports Economic Regulatory Authority of India’s website. Each outbound domestic traveler also has to pay 200 rupees of airport development fee.
Aircraft weighing up to 100 metric tons must pay a landing fee of at least 281.82 rupees per ton. Q400 planes each weigh 29.6 tons, according to Bombardier’s website. In airfields such as Chandigarh and Dehradun, operated by state-owned Airports Authority of India, Q400s are exempted from landing fees because their seat capacity is below 80.
Airport charges will account for 745 rupees, or 15 percent of the fare, on a 1,400 kilometer trip from New Delhi to Mumbai on a Sept. 10 SpiceJet flight, according to the carrier’s website. The fee was 113 rupees on a 1,600 kilometer journey from Mumbai to the northern city of Chandigarh.
The increase in Delhi airport fees would have cost an additional 200 million rupees a month for SpiceJet if it hadn’t passed on the charges to passengers, Mills said. The carrier spent 766 million rupees for airport charges during the quarter ended June 30, up 36 percent from a year earlier.
Smaller airports such as Dehradun, Srinagar and Chandigarh don’t levy user charges. Instead, the state-owned airport operator collects a uniform 207 rupees as a passenger service fee from each outbound traveler. This charge is also applicable for the Delhi airport.
“It doesn’t make sense to deploy more flights from Delhi where cost is high and competition even higher,” said Sharan Lillaney, an analyst at Angel Broking Ltd. in Mumbai. “It’s better to move to a low-cost, high-growth venue since the focus is on profitability.”
The increase in Delhi airport charges will affect travel demand by as much as 7 percent, IATA’s Director General Tony Tyler said in New Delhi on July 25.
The airport operator said in a statement after Tyler’s comments that Delhi International Airport invested “heavily” to improve existing infrastructure and create new facilities. “This investment is now being offered a limited, regulated return by the competent authority,” it said, adding that the charges won’t affect the airport’s long-term success.
Delhi International Airport posted a 1.3 billion-rupee loss in the first quarter, parent GMR Infrastructure Ltd. said in an exchange filing today. The fee increase will help the facility meet its financial obligations, GMR said.
Ragini Chopra, a spokeswoman at Jet Airways (India) Ltd., the nation’s biggest, didn’t respond to e-mailed questions on the fee increase. State-run Air India Ltd.’s spokesman K. Swaminathan, and Sakshi Batra, a spokeswoman at IndiGo, the nation’s biggest budget airline, also didn’t immediately respond to e-mailed questions.
Shares of SpiceJet and Jet have more than doubled in Mumbai this year. SpiceJet rose 0.6 percent to 34.45 rupees at close of trading in the city. Jet fell 1.2 percent.
The carriers also won more passengers after rival Kingfisher Air pared operations because of losses and a cash shortage. Billionaire Vijay Mallya-controlled Kingfisher’s market share was the lowest in June among India’s six operators from second in October after it ended two-third of flights and grounded planes.
SpiceJet is seeking to control expenses to help maintain growth after the carrier returned to a profit following five straight quarters of losses. Net Income in the three months ended in June was 562 million rupees. Sales jumped 51 percent to 14 billion rupees.
The carrier may post a profit of 1.4 billion rupees in the year ending in March 2014, its first annual profit in three years, according to the average of 10 analyst estimates compiled by Bloomberg. In the current fiscal year, the company may report a loss of 18 million rupees, according to analysts.
Jet Airways also reported a profit in the first quarter. Bank of America Merrill Lynch this week recommended buying both the carriers’ stock and also raised their price target, citing rationalization of routes and improved fares.
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