Aviation industry wants budget to cut jet fuel prices

February 23rd, 2008 - 9:39 am ICT by admin  

By Varada Bhat
Mumbai, Feb 23 (IANS) The Indian aviation industry hopes that the union budget would this time reduce the cost of jet fuels, which account for over 45 percent of operational costs of carriers, among the highest in the world, said industry officials. The industry says that it bleeds with the unfriendly cuts that aviation turbine fuel (ATF) causes to its bottom line.

Jet Airways’ executive director Saroj K. Datta told IANS: “Currently, ATF makes up for a huge percentage of our expenses. We want the government to make sure the proportion goes down significantly by making ATF a declared good.”

The move would mean that ATF would attract a uniform sales tax of four percent across the country. Currently, jet fuels are taxed variously by different states.

Airlines say while ATF in India accounts for more than 45 percent of the total cost of operations, in most other countries it is in the range of 18-20 percent.

The problem in India is that ATF is heavily taxed, with local prices 70-80 percent higher than international prices, they say.

According to data obtained from the Federation of Indian Airlines (FIA), an apex industry body which has been formed by scheduled Indian carriers, the price paid by carriers in Dubai is $620 (Rs.24,806) per kilolitre (KL) and in Singapore $577 (Rs.23,064) per KL.

In sharp contrast, Indian carriers pay between $1,000-1,125 (Rs.40,000 to Rs.45,000) per KL depending on the taxes levied by the states which vary between 4 and 38 percent.

In Kolkata ATF costs Rs.45,537 per KL, followed by Hyderabad at Rs.44,241 per KL and Thiruvananthapuram at Rs.43,907 per KL.

In Mumbai, ATF costs Rs.41,105 per KL, while the lowest ATF price is in Delhi at Rs.39,767 per KL.

These prices are applicable only to domestic carriers for domestic operations.

In order to tide over high fuel costs, airlines levy a fuel surcharge of Rs.1,650 on all passenger tickets.

Apart from that, low-cost carriers (LCC) fear that cost-conscious travellers may return to the more economical and increasingly comfortable rail travel.

“Distribution costs of LCC’s are expensive as Internet penetration is the main ticketing medium for us. Besides there are certain regulations like all airlines ought to be flying on some unprofitable routes. All these together will throw the airlines’ budgets out of gear,” said GoAir managing director Jeh Wadia.

Even the handful of regional airlines want easing of the restrictions placed in the existing regional airline policy. According to the policy, regional airlines cannot operate between different zones in the country.

“All our flights connecting small towns have 95 percent load factor, but we cannot connect cities in the other regions,” said Koustav Dhar, executive director of marketing and planning of MDLR Airline, which is based in Gurgaon near Delhi and flies in northern India.

Kingfisher Airlines’ chief financial officer A. Raghunathan wanted Finance Minister P. Chidambaram to address the issue of carrying forward of losses in the event of a merger.

“Recently the Air India-Indian merger saw an exemption provided for the airline,” he said. “We want this to be extended for mergers involving private airlines.”

A relaxation in clause 72-A of the Income Tax Act would allow merging private airlines carry forward their accumulated losses.

Such an amendment would smoothen the course for amalgamations like Jet-Sahara and Kingfisher-Deccan.

Another major issue of concern with most airlines is the fringe benefit tax (FBT). For airlines, even routine aspects like travel and accommodation for flying crew as well as passengers whose flights are delayed come under the FBT purview.

A service tax is also levied on upper-class air travel as well as landing and air navigation fees, which the industry wants abolished, said Anand Ramchandran, vice-president of finance at Air Deccan.

It is not just the commercial aviation segment that seeks changes in taxes and duties.

General aviation comprising part ownership of aircraft, air charters and helicopter services also has its own wish list.

Manav Singh, managing director of Club One Air, a fractional ownership company, said: “The customs duty on aircraft for general aviation is a whopping 25 percent. Why should there be such a heavy duty when you don’t have any indigenous airplane manufacturer to protect from foreign competition?”

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