The Hindu : Increase in domestic air fares likely

Online edition of India's National Newspaper
Thursday, Mar 13, 2003

Front Page

Front Page

Increase in domestic air fares likely

By Vinay Kumar

NEW DELHI MARCH 12. Reeling under the impact of an increase in the prices of Aviation Turbine Fuel (ATF), domestic airlines appear set to effect a 10 per cent increase in passenger fares. But there is an interesting twist to it: After its repeated pleas to lower tax on ATF failed to yield any result, the Centre is in a mood to "penalise" the States where ATF is heavily taxed.

Highly-placed sources in the Ministry of Civil Aviation said there was a thinking in the Ministry to charge more on such sectors in those States levying hefty rates of sales tax on ATF and were not "airlines-friendly".

However, airline sources say it could turn out to be a complicated affair and may lead to several problems.

In another step which could bring cheer to Air India and Indian Airlines, the Ministry of Civil Aviation has requested the Finance Ministry to amend the Central Sales Tax Act suitably to treat sale of ATF to Air India and Indian Airlines for their international operations as "deemed export" so that such ATF will be free from levy of sales tax.

Industry sources say the high tax structure on the aviation fuel is affecting the growth in the aviation sector. Sales tax as high as 39 per cent are levied by some of the State Governments on ATF. While the highest rate of 39 per cent is charged by Kerala, it is nil in Andaman and Nicobar Islands. Andhra Pradesh reduced it to four per cent from 30.55 per cent in April 2002.

According to the Confederation of Indian Industry (CII), the average domestic price of ATF is about 90 per cent higher than the prices in foreign countries and affects domestic airlines as ATF accounts for 30 to 40 per cent of operating cost.

It says that an increase in security charges, and insurance costs due to the increased threat perception have added to the woes of airlines. Increased tension in the Gulf has also led to an increase in global oil prices which puts further pressure on the airlines.

The CII national committee on civil aviation found that domestic fares at present are 23 per cent to 30 per cent higher than international fares for a comparable block time and distance. Also, one can fly almost 41 per cent longer on the international sector than domestic for the same price.

Pricing of ATF was decontrolled from April 2001. ATF sold to turbo-prop aircraft has already been included in the list of "declared goods" thereby the maximum sales tax rate for such sale has been restricted to four per cent.

ATF prices have been raised from Rs. 20,150 a kilolitre in December last year to 25,200 a kilolitre in March due to the uncertainty in West Asia.

In such a scenario, the fuel bill of the Indian Airlines is likely to cross Rs. 1,300 crores in 2002-03. Private airlines, Jet Airways and Air Sahara, will follow if Indian Airlines announces a fare hike.

Printer friendly page
Send this article to Friends by E-Mail

Front Page

Stories in this Section

We'll not back regime change in Iraq by outside forces: PM

Serbian PM assassinated

Excavation begins amid tight security

Increase in domestic air fares likely

LTTE pondering options

SIMI leader held

JeM militant killed

3 injured in ULFA attack

Foreigner freed

Iraq shifts its ambassador