Airlines protest 30% steep hike in rent at airport

During the pandemic, we had received relief from various agencies who are associated with Airport Operations at Chhatrapati Shivaji Maharaj International Airport except from MIAL who insisted we continue to pay the year-on-year increase as per the agreement

Mumbai: The Airline Operators Committee (AOC) of Mumbai airport has been at loggerheads with the Adani Airport-controlled Mumbai International Airport Limited (MIAL) over a steep hike in the rental rates for the premises. The AOC has alleged that the rates are being hiked by at least 30%, while they are fine with a hike of 7.5%.

The first letter was written by AOC on April 3 where it mentions a mail on March 24 about the renewal of the licence agreement. Hindustan Times has a copy of communication between AOC and MIAL and vice versa. (Hindustan Times)

The AOC had two meetings with the MIAL, which runs the city airport, but it did not bear any fruit. The AOC is a committee of all airlines operating and there are nearly 50 of them from Mumbai.

The first letter was written by AOC on April 3 where it mentions a mail on March 24 about the renewal of the licence agreement. Hindustan Times has a copy of communication between AOC and MIAL and vice versa.

There have been two meetings between the AOC and the MIAL and the last one was held on Thursday and both meetings did not bear any fruit.

“During the pandemic, we had received relief from various agencies who are associated with Airport Operations at Chhatrapati Shivaji Maharaj International Airport except from MIAL who insisted we continue to pay the year-on-year increase as per the agreement, which meant we continued to pay an increase in rate in spite of reduced inflation as per market standards,’’ the letter says.

“We now fail to understand on what basis MIAL has increased the rent rates to a direct 30% for the first year which will also affect the remaining four years’ rates, the increase in rate will amount to 60% in the 5th year. No communication once again to discuss such rates prior to the proposal. There is also no justification whatsoever in the emails received by all to understand the mechanism behind the increases. We don’t accept the increase in rate as this is not a fair trade practice and is simply not acceptable,’’ the AOC letter states.

On April 4, the MIAL informed them that the correction in the space rentals has been pending for a long and ought to have been implemented earlier, but it was not done due to the pandemic.

The MIAL has also informed that as assets grow older the need for upgradation and maintenance of such assets becomes essential. Consequently, there is a substantial increase in such costs. The MIAL has also stated that since they have been conferred several prizes as a world-class airport, maintenance also requires money.

“CSMIA is one of the busiest airports in the world and also among the most land and space-constrained airports globally. In light of the aforesaid, it becomes all the more imperative for the airport operator to keep on scaling up such expenses to ensure a seamless experience for the passengers at all touch points. On the basis of the aforesaid, we have carried out the minimum escalation of rates as compared to the huge direct as well as opportunity costs being incurred by us,’’ the MIAL response states.

The MIAL has said that 10% escalation is the linear annual escalation while the balance 20% is towards the part recovery of increased common area maintenance charges.

The AOC replied to this and said on April 11 that “We are not sure about what correction rate MIAL is talking about because the rent and the YoY increase have been as per market standard and also the highest among all airports in India.

The state-of-the-art terminal which you’re referring to should not correlate with the increase in rent since the level at which airlines are working really does not have any state-of-the-art facilities and for the usage of the terminal, the passengers are paying the fees as required so not sure why we also need to pay the same. And a 30% increase would not be considered as substantial pride should not come at such a high cost and it’s not right.’’

The AOC has also said that since CSIA is a busy airport it is already generating costs through various modes such as landing and parking, retail, development fee, royalty etc. and now increasing the rent is going to add a burden to the Airlines who are still running in losses

The AOC also said that 7.5% is a justified increase and keeping in mind the already high charges that stakeholders are already paying for operating out of CSMIA.

A MIAL spokesperson said that The revision in space rentals is purely based on a market correction. As per a benchmarking study conducted by Savills, one of the world’s leading property experts, the land prices in Mumbai are much higher compared to other cities and the airport is also located within the city limits, which further results in higher prices. However, the current rates for rental spaces levied by Chhatrapati Shivaji Maharaj International Airport are well below industry standards. At CSMIA, the market correction in space rentals has been overdue, as in some cases, there has been no market correction for rentals since the year 2014, which is a basic requirement for upgradation and maintenance of the assets & allied services, the spokesperson said

Owing to the pandemic (which was a difficult period for both airlines and airport operators), to support our partner airline stakeholders, the correction of space rentals was deferred by Mumbai Airport. Considering that passenger traffic has now reached pre-covid levels, to ensure smooth business continuity, a proposal for revised space rentals has been put forth to the Airline Operator Committee of Mumbai for their due consideration. CSMIA is extending all necessary support to the Airline Operator Committee of Mumbai on this matter to ensure a mutual agreement so that we may work together towards achieving a superior and seamless travel experience for our passengers in Mumbai, the spokesperson added.