The Hindu : IA not to hike fares

Online edition of India's National Newspaper
Saturday, Mar 30, 2002

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National

IA not to hike fares

By Gargi Parsai

NEW DELHI MARCH 29 . Indian Airlines has no plans to hike passenger fares, despite having suffered a loss of Rs. 250.65 crores this year, due to high aviation turbine fuel (ATF) price and insurance premium costs. The airline has projected a loss of Rs. 98.90 crores in the next financial year.

With the flexi-fare mechanism in place that gives the airline the option of `restructuring' fares as and when required, it plans to hold out for now. But whether it is Indian Airlines, Jet Airways or Sahara Airlines, the airlines in the domestic sector have been hit hard by the high and anomalous cost of ATF. Attempts are on by the Civil Aviation Ministry to prevail upon the Finance Ministry to remove the anomaly with international carriers fuelling in India and to rationalise the sales tax structure on ATF and bring it at par to an average of four per cent as in the North-Eastern sector.

For all airlines last year, the two major components in the operating costs were the ATF and the raised insurance premium in the aftermath of the September 11 events in the United States. For Indian Airlines, however, insurance companies raised the premium after the terrorist attack at Colombo airport in July last year. Ideally the airline would have withdrawn some flights to Sri Lanka, but as part of its "social obligation'' it had to in fact start a new flight between Tiruchi and Colombo. After September 11, in the face of dwindling foreign traffic in the last quarter and insurance companies refusing to pay for third party cover, it had to absorb the brunt of high costs estimated at Rs. 125 crores.

ATF consumption by the 100 aircraft operating in the domestic skies is said to be less than 0.1 per cent of the total oil pool. Yet the Government continues to overlook the fact that there is no sales tax on ATF for foreign carriers, while for domestic services it ranges between 20 to 36 per cent, the highest being in Gujarat. The increase of 48 per cent in ATF last year led to an outgo of Rs. 1050 crores for Indian Airlines. The airline is at par with Air India, which gets fuel at bonded price, for 30 per cent of its foreign operations, but in the domestic sector it is hit hard.

The average domestic ATF price per kilolitre rose from Rs. 600 in 1970-71 to Rs. 14,500 per kl in 1996-97 and to a whopping Rs. 22,500 per kl in 2000-01. And even after deregulation between April and December, 2001 it was Rs. 19,000 kl, much higher than the current international price of Rs. 9,200 kl.

Earlier Indian Airlines used to pass on all of its increases in operating costs to passengers and had resorted to fare hikes every year till 1998. But in the prevailing situation of stiff competition, fall in traffic and general recession airlines will not raise fares any further than they are. On the contrary if the Government corrects the disparity in ATF price, it would ultimately benefit passengers.

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