Ashwini Phadnis

With the domestic airline industry losing more than Rs 24 crore a day, mainly on account of high fuel costs and low realisation of fares from passenger ticket sales, the industry has approached the Government for help.

Airline officials point out that what the industry is looking for is not indefinite help but some short-term relief, which will prevent it from either going sick or closing down.

At the moment, all eyes are on the meeting of the Empowered Committee of the State Finance Ministers on VAT to be held in Delhi on June 16.

The airline industry has enough reasons to feel worried. While fuel prices increased by 77 per cent from June 2007 to June 2008, the average realisation per ticket too dropped during this period.

According to the Civil Aviation Ministry, Aviation Turbine Fuel (ATF) prices have risen from Rs 21 per litre in 2004 to Rs 70 per litre currently, while the average fare declined from Rs 6,050 in 2004 to Rs 3,950 during 2007.

“If the Government can provide subsidy of more than Rs 1,25,000 crore for petro products, then why not give a relief of about Rs 5,000 crore, which is the amount that the States collect by way of taxes and other levies on ATF?

After all, the decision to subside petroleum products allows a person in major cities to drive luxury cars at subsidised rates but prevents a person wanting to travel to a tier-II city like Chandigarh or Kanpur by air,” a senior Government official pointed out.

According to the aviation industry, one of the biggest problems is the high base price of ATF in India compared with other parts of the world.

This has been compounded by the States levying a sales tax, which varies from 30 per cent in Gujarat, 29 per cent in Bihar, 28.75 per cent in Madhya Pradesh to as low as 4 per cent that is charged by both Andhra Pradesh and Kerala.

Airlines estimate that if ATF was to attract a uniform sales tax of 3 per cent throughout the country, then on the estimated consumption of 26.37-lakh kilolitres during 2008-09, this will provide a relief of Rs 3,230 crore to the domestic industry.

Similarly, if excise duty is also reduced to 4 per cent throughout the country, then this will provide a further relief of close to Rs 1,100 crore. Sources point out that the loss to the States, by such a move, will be marginal as the ATF sales tax is around 1-2 per cent of the total sales tax collected by the States.

Interestingly, the combined impact of reducing sales tax and excise duty will work out to a relief of around Rs 5,000 crore, which is more than the estimated loss of Rs 4,000 crore, which the airlines collectively expect to post during this year.

Airlines point out that the Government’s help will be worthwhile, as the International Civil Aviation Organisation (ICAO) estimates that every $100 spent on air transport produces benefits worth $325, while every 100 jobs in the sector result in 610 jobs in other sectors.

However, official sources warn that not much should be expected from the Government. “The Ministry of Civil Aviation has approached the Finance Ministry for making ATF a declared good, so that it attracts a uniform sales tax throughout the country.

At the moment, the Finance Ministry does not seem to be in favour of doing this. The industry may say that they would import fuel directly, a move that may see ATF prices declining slightly,” said a senior Government official.

He added that for any major relief, the industry will have to look at bringing its own house in order, increasing fares, rationalising the flights that the airlines operate and possibly pruning the number of aircraft on order.

The industry, meanwhile, is planning to curtail services voluntarily, if no help is forthcoming from the Government. This was decided at a meeting of airlines held last Friday in Mumbai.

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