23 Jan, 2020
Should Indian airports prioritise duty-free financial health over human health?
Editor’s Note: Both alcohol and cigarettes are known health hazards. But they are also major revenue spinners for private companies and governments. The Indian government wants to cap the sales of both at the airport duty-free shops. Airports Council International Asia-Pacific opposes the move because it “is inconsistent with the Government’s fruitful efforts to date to incentivize private capital in the public sector and will damage the growth trajectory of Indian airports and duty-free providers.”
This dispatch publishes the full text of the ACI release, along with a poll for you to have your say.
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[January 23, 2020 – Hong Kong] Airports Council International (ACI) Asia-Pacific is 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 incentivize private capital in the public sector and will damage the growth trajectory of Indian airports and duty-free providers.
The proposal by the Ministry restricts the purchase of tax-free alcohol at airport duty-free shops to one 1-liter bottle and restricts the purchase of cigarette cartons at these shops. “We urge the authorities to reject this proposal. Not only is it inconsistent with the latest attempts by the Government to incentivize private capital to invest in the airport industry but it undermines the growth opportunity for Indian airports and duty-free providers who are a driving force in the local airport economy,” said Mr. Stefano Baronci, Director General, ACI Asia-Pacific. “Duty-free operators must be able to count on the expansion of airport infrastructure along with new retail space and a regulatory framework that incentivizes the market to grow. Unfortunately, the Ministry’s proposal will limit this objective if airports cannot generate non-aeronautical revenues to cover aeronautical cost.”
The latest airport privatization processes carry significant capital expenditure risk on the part of investors, requiring them to diversify and increase non-aeronautical revenue streams. The latest privatization bids were set on the grounds that investors could enjoy full freedom to generate commercial revenues at the airport. The Ministry’s proposal to reduce the import of duty-free goods runs the risk of having the opposite effect because it neglects the potential adverse impact it may have on the growth of commercial business.
Indian airports have tremendous growth potential in terms of duty-free and travel retail. Wine and spirits are the top duty-free segment in India. According to the 2018 World Air Traffic Report published by ACI, passenger traffic in India will grow by 6.1% every year until 2040. Within an unconstrained scenario, it is forecasted that the spending in duty-free and travel retail will grow 20% to US$2.1 billion in 2022*.
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