Aviation minister Jyotiraditya Scindia said on Thursday, April 14 that while he is in constant touch with the 12 state governments that still levy VAT in the range of 10-30%, he has requested the finance ministry to rationalise excise on jet fuel.
Prices of aviation turbine fuel (ATF), or jet fuel, have risen “inexorably” in recent times and are putting a “tremendous amount of pressure” on Indian carriers.
The high base price of ATF – it kept rising even as politically sensitive petrol and diesel was untouched during the recent state election times – coupled with even higher rates of VAT and excise duty has made jet fuel for domestic flights in India among the most expensive globally.
“Till a few months back, 11 states charged VAT ranging 1-4% on ATF, while 25 did so in the range of 10-30%. Our efforts have now led to a reversal of the situation where today 24 states charge 1-4% and 12 charges 10-30%. We are working on the remaining states also,” Scindia said.
However, states with the biggest metro hubs like Delhi and Mumbai are yet to lower their taxes. If those states are not agreeing, then why does the Centre not reduce excise on ATF, a demand constantly raised by struggling-to-survive airlines?
“We have met with the finance minister. It is under her active consideration (reduction of excise),” he said. Seven bimonthly hikes so far this calendar year have led to ATF prices increasing by almost 50% to all-time highs.
In Delhi, Mumbai, Chennai and Kolkata, for instance, ATF cost INR 1.1-1.2 lakh per kilolitre (1,000 litres) for domestic flights as of Thursday, April 14.
On the other hand, domestic fare bands, decided by the aviation ministry, have not been revised upwards for many months, despite the relentless hike in jet fuel prices.
Asked if the domestic fare bands are being done away with and why they have not kept pace with ATF, the minister said, “The fare bands have a low and upper-end of fares. The range is still large enough to (factor in enhanced operating cost due to ATF).”
While no Indian airline (except IndiGo) had a healthy balance sheet in the past few years, the pandemic’s crippling blow has left them all struggling to survive. Russia’s war on Ukraine – leading to fuel price hikes and weakening of the rupee vis-a-vis the dollar – has added to woes.
“Airlines are not a cost-plus industry. We have hardly passed on half of the enhanced increase in operating cost to passengers. Due to increased fares, recovery in domestic traffic has taken a hit. Till the six metros reduce ATF price, not much will change for airlines in terms of survivability,” said an airline official.
“The rupee weakening against the dollar by every INR 1 means an enhanced expense of INR 75-80 crore for a mid-sized airline and INR 150-200 crore for a large airline in India. About 65-70% of our costs are dollar-denominated like aircraft lease/maintenance, foreign stations and GDS,” said another airline official.