Forbes India 15th Anniversary Special

Alcohol sale restrictions could hurt Indian airports by nearly Rs 200 crore

The Indian government's proposal to restrict passengers to buy just one liquor bottle (instead of two) at airport duty-free shops will hurt the profits of airports and increase the cost of air travel, according to multiple airport operating services firms

Published: Jan 24, 2020 11:46:45 AM IST

Image: Shutterstock

Last week, the Indian government released a proposal to limit the sale of airport duty free alcohol to one bottle per passenger, halved from the two at present, in its recommendations for the Union Budget 2020-2021. According to the Association of Private Airport Operators (APAO), this could harm the entire aviation ecosystem comprising airports, airlines, duty free operators and the Airports Authority of India (AAI). It added that the move does not help in any way in improvement in balance of payments.  The APAO determines that the share of import of liquor for sale to arrival passengers in total import is miniscule, at mere 0.0213 percent.

On Thursday, the Airports Council International (ACI) Asia-Pacific issued a release, calling on the Ministry of Commerce and Industry of the Government of India to maintain the status quo of the existing per passenger duty-free liquor allowance of two litres and one carton of cigarettes. “The Ministry’s proposal is inconsistent with the Government’s fruitful efforts to date to incentivise private capital in the public sector and will damage the growth trajectory of Indian airports and duty-free providers,” it said in the release.

At most Indian airports, duty-free revenues make up 15 to 20 percent of the total non-aero revenues and sales of liquor and cigarettes together account for over 75 to 80 percent of overall duty free sales. 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. It is estimated that the aero charges will go up by at least Rs. 200 crore annually across India, which will have an impact on ticket prices. It may even impact the growth in passenger traffic, which is already extremely subdued.

The latest data from Director General of Civil Aviation (DGCA) shows that India’s domestic air passenger traffic growth has slowed to 3.74 percent in 2019, from 18.60 percent in 2018. Indian domestic carriers carried 144.17 million passengers in 2019 as against 138.98 million passengers in the year ago period.

“Duty-free operators must be able to count on the expansion of airport infrastructure, along with new retail space and a regulatory framework that incentivises the market to grow. Unfortunately, the Ministry’s proposal will limit this objective, if airports cannot generate non-aeronautical revenues to cover aeronautical cost,” said Stefano Baronci, Director General, ACI Asia-Pacific in the release.