Taxes on jet fuel in India along with lack of competition for fuel suppliers at airports is “strangling the lifeblood from the airlines,” International Air Transport Association (IATA) Director General and CEO Alexander de Juniac said on Tuesday.
IATA also expressed concerns over the Goods and Services Tax (GST) imposed on international flight tickets. Mr. Juniac said that such a levy “weakens India’s competitiveness by raising the cost of connectivity.”
At present, 5% GST is levied on economy class tickets and 12% on business class tickets for international travel. The recent spurt in fuel prices has led to industry players reiterating the additional burden imposed on Indian players, who also have to pay extra taxes on ATF.
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“Fuel accounts for about 24.2% of an airline’s average cost structure. In India, it is 34%, making India’s carriers particularly sensitive in this area. All airlines are already suffering from the rise in fuel prices and India’s regulatory and tax framework around fuel hits airlines serving this market harder,” Mr. Juniac said, addressing the International Aviation Summit.
He added that lack of competition among fuel suppliers at airports ensure that there is little commercial incentive to keep fuel prices competitive.
“If you kill the goose that lays golden eggs, there are no more eggs!”, Mr. Juniac said.
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Mr. Juniac proposed bringing jet fuel under GST with full input tax credit, removing the fuel throughput fee, providing common use open access infrastructure for fuel at airports and reducing excise duty on fuel as measures that will ensure a level playing field for Indian players and ensuring competitive fuel prices.
There was also criticism of the recently announced transaction structure for greenfield airports which will be based on fixed fee per passenger to be paid by the winning bidder. Instead, the IATA DG urged, there should be flexible parameters that are regularly reviewed by a regulator.
The global body said that India has seen 50 months of consecutive double digit growth and indications are that this will continue. By 2037, the country is expected to see 500 million passengers travelling to, from and within India.
Civil Aviation Minister Suresh Prabhu tried to allay concerns about infrastructure growth not keeping pace with growth in demand and said that plans are afoot to set up 100 new airports in the next 10- 15 years with an investment of up to $60 billion.
On the issue of airlines unable to pass on the costs to passengers despite an increase in fuel prices
SpiceJet Chairman and Managing Director Ajay Singh made an appeal to domestic airlines and said, “There is scope for airlines to raise fares and better sense will prevail among airlines. It is important that airlines are financially healthy for the revolution in the aviation sector to happen.”
In response, a spokesperson for market-leader IndiGo told The Hindu that the carrier was the first among Indian airlines to levy additional ₹200 to ₹400 as fuel surcharge and, therefore, IndiGo had done its best to ameliorate the impact of the fuel price increase.