Move to cap liquor, cigarette quota to hit airport revenue

The government’s move to limit quantity of liquor and cigarettes purchased from duty-free shops at airports and the order waiving fee paid by oil companies for jet fuel sold to airlines could affect commercial revenue earned by the Airports Authority of India (AAI) at Chennai airport.

A new order that has exempted oil companies from paying a fee of Rs 1,000 per litre of aviation turbine fuel lifted by flights from the airport from mid-January has dealt a severe blow to the airport which is struggling to generate revenue.

Duty-free shops bring a good percentage of the total non-aeronautical revenue earned by the airport as retail shops are not a big draw among passengers.

If passengers are allowed to buy only a single one litre liquor bottle instead of two bottles, the revenue earned by duty-free shops is expected to dip by almost 50%. Sale of liquor and cigarettes constitutes more than 80% of the revenue generated by duty-free shops. The company that runs the duty-free shops pays around Rs 5crore a month to AAI.

An airport official said, “The licence fee given to the airport will become unviable if the new rule is implemented. They may have to renegotiate the fee so as to reduce it. This will cause a loss to the airport. They may ask for a cut in the fee to the extent of Rs 2crore or less if the proposal comes into effect.”

Chennai airport has two-duty free shops. One at the international terminal, which witnesses the maximum sales, and another at the domestic terminal.

The move has come at a time when private airport operators and AAI suggested that passengers should be allowed to buy more liquor from duty-free shops.

AAI is struggling as it controls only Chennai and Kolkata airports where it can boost non-aeronautical revenue. The scope to earn money from retail, food and beverages and duty-free shops from small airports is minimal. “It has been a struggle to promote retail business in small airports as passenger footfalls are low. At the same time, fuel charge and landing and parking charges are waived at small airports for small planes to promote regional connectivity scheme,” said an official.

A senior official said this would go against the idea of Airports Economic Regulatory Authority that higher earnings from commercial entities can be used to retain aeronautical charges such as landing and parking charges levied on airlines low.

Duty-free shops are being closed at small international airports.

Source:- https://retail.economictimes.indiatimes.com/news/industry/move-to-cap-liquor-cigarette-quota-to-hit-airport-revenue/73602468

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