Airfares from Delhi airport may rise as GMR seeks higher charges

IGI Airport.

Passengers may have to pay higher fares as airlines look to pass on increased operating costs following the proposal by the operator of Delhi's Indira Gandhi International Airport (IGIA) to raise the user development fee (UDF).

According to multiple sources familiar with the discussions, several airlines, including IndiGo, Air India and Akasa Air, have urged GMR Airports—the concessionaire for IGIA—to reconsider the proposed hike in airport usage fees.

UDF is levied by airports to boost revenue and ensure a fair return on investment. It is collected from departing passengers to bridge the viability gap in airport operations. The operators of Delhi and Mumbai airports have been authorised by the government to levy UDF, primarily to fund modernisation efforts.

Multiple airline officials told Moneycontrol that a significant increase in charges, particularly the UDF proposed in GMR’s recent submission to the Airports Economic Regulatory Authority (AERA), could result in a 5-10 percent rise in fares on select routes.

India has already recorded the second-highest increase in domestic airfares in the Asia-Pacific (APAC) and West Asian regions since the pandemic, from 2019-20 to 2023-24.

Airlines have raised concerns over the impact of steep tariff hikes. "Multiple factors influence domestic airfares in India, and while a sharp increase in UDF will push fares higher, the extent of the hike will depend on specific routes. On average, flights from Delhi are likely to become 5-10 percent more expensive compared to the lower band of current fares," a senior IndiGo executive told Moneycontrol.

He added that the proposed increase in UDF and aeronautical charges would put additional financial pressure on airlines, especially during low-demand periods such as January-March and July-September, when carriers often offer discounts to stimulate demand.

"Air travel demand in India is cyclical and heavily dependent on holidays and festivals. A sharp rise in UDF during slow periods will strain airline margins, forcing them to provide discounts to maintain passenger traffic," the IndiGo executive said.

Stakeholder consultations

AERA conducted a stakeholder consultation meeting on February 17 to discuss tariff revisions for IGIA’s fourth control period (April 1, 2025–March 31, 2029). The meeting included representatives from GMR Airports, domestic airlines and the International Air Transport Association (IATA). AERA has requested written submissions from stakeholders by March 3.

The regulator sets a five-year revenue target for an airport, based on operating costs, depreciation, non-aeronautical revenues and taxes, along with the associated charges for the airport operator. The airport operator has cited higher capital expenditure and debt servicing commitments amid continued losses as reasons for the proposed increase in tariff.

An Air India executive acknowledged that while a UDF hike at the airport in the capital is inevitable, a gradual increase would be preferable.

"Delhi airport has maintained a reasonable UDF so far, but a sharp rise will compel airlines to pass on the costs to passengers, potentially slowing growth projections," the executive said.

He added that domestic airlines are expanding their fleets, and any slowdown in growth could affect financial performance, leading to further airfare hikes as carriers attempt to mitigate losses.

IATA too has urged AERA to reject this "complex and discriminatory" tariff structure proposal involving aircraft type and flight timing, among other variables.

"We encourage AERA to address the differential between the domestic and international landing fees and user charges," Amitabh Khosla, country director, India, IATA, told Moneycontrol.

"We have asked AERA to moderate the proposed charges increase, including maintaining a realistic view of the investments, costs and returns to the airport operator to ensure that airport users are protected," Khosla added

Financial challenges

Currently, domestic and international passengers pay a flat UDF of Rs 52 on their base ticket price. In FY24, Delhi airport generated Rs 152.48 crore in revenue from UDF.

Delhi International Airport Limited or DIAL, the consortium led by GMR Airports that manages IGIA, has proposed increasing this fee to up to Rs 610 for domestic passengers and Rs 1,620 for international passengers, alongside additional hikes in aeronautical charges. AERA will determine the final rates.

GMR Airports is also considering a tiered pricing model, charging higher UDF for business-class passengers than those travelling economy.

Airline officials believe this will have minimal impact on business-class ticket sales. "Airlines have higher margins on business-class fares, allowing them to absorb the UDF increase without significantly affecting ticket prices," an Air India executive said.

He added that business-class travellers are unlikely to be deterred by higher fares due to the premium services, such as better lounges and a wider range of in-flight dining options.

Similarly, an IndiGo executive noted that less than 2 percent of domestic flyers in India choose business class, adding however, that the proposed UDF hike for the economy segment passengers was substantial.

DIAL in a letter to AERA submitted last week along with the proposal to hike tariffs explained that it would not be able to generate sufficient cash to meet its capital expenditure obligations, and would require new loans to cover the bond maturity in 2026.

"DIAL has been incurring losses in recent years, with current fiscal losses expected to exceed Rs 1,500 crore. The recently completed Phase 3A expansion project required over Rs 12,500 crore in capital expenditure, largely financed through borrowings. As of December 2024, DIAL carries a debt of over Rs 15,000 crore, including $522 million in bonds maturing in October 2026," DIAL’s letter to AERA stated.

Over the next four years, DIAL estimates an average aeronautical revenue per passenger of Rs 370. It expects to remain in losses for the next two financial years, which could impact its credit rating and ability to raise further debt.

To address this, DIAL has requested AERA to approve an aeronautical revenue per passenger of Rs 450 for FY26 and FY27, with the remainder adjusted over the following two years. The new rates, if approved, will take effect from April 1, 2025.

In 2019, DIAL raised the UDF from Rs 10 (domestic) and Rs 45 (international) to up to Rs 65 for domestic and international as part of the third control period (April 1, 2019–March 31, 2024).

With the upcoming revisions, airlines are bracing for higher costs, which could significantly impact passenger fares, particularly on domestic routes.