Airfares are likely to go up as the government announced a sharp increase in the excise duty levied on aviation turbine fuel (ATF).
Now, 14 per cent excise duty will be charged on aviation fuel, up from eight per cent at present. However, the excise duty hike will not apply to the supply of fuel from regional routes, under the proposed Regional Connectivity Scheme.
Experts say the costs for airlines may go up by four-five per cent as a result of the excise duty hike.
“Increase in excise duty on ATF will make the raw material costlier by four-five per cent. At a time when ATF in India is 60-70 per cent costlier than global ATF prices, it goes against the government’s stated objective to make flying affordable for the masses,” Amber Dubey, partner and head of aerospace and defence at global consultancy KPMG said.
This comes at a time when air traffic in India witnessed a robust growth of over 20 per cent last year with domestic airlines carrying 8.12 crore passengers. The airlines took advantage of cheaper aviation fuel globally by offering tickets at lower prices attracting a lot of air traffic. Airfares in 2015 were 15-20 per cent lower than the previous year.
It had also helped the Indian carriers in improving its balance sheet with both SpiceJet and Jet Airways zooming back to profit in the second and third quarter of 2015-16.