Airlines want budget 2021 to lower jet fuel price and parking charges

Airlines want budget 2021 to lower jet fuel price and parking charges
  • The aviation sector is batting for tax sops to help reduce their high cost and debt burden, according to ICRA.
  • According to the latest data from the DGCA, domestic airlines across the country carried 55.6 million passengers from January to November 2020, nearly 58% lower from what they carried in the same period last year.
  • Check out the latest news and updates on Business Insider.
The never-seen-before coronavirus pandemic has cast a shadow on the aviation sector. The industry suffered a major cash crunch after thousands of flights daily came to a grinding halt in April. Coming out of the very difficult times, the sector is hoping for incentives and support from Finance Minister Nirmala Sitharaman in the upcoming Budget 2021 on February 1.

From lowering air turbine fuel taxes (ATF) to fiscal stimulus and reducing airport, parking, landing, navigation charges — the experts have prepared a long list of tasks.

According to the latest data from the Directorate General of Civil Aviation (DGCA), domestic airlines across the country carried 55.6 million passengers from January to November 2020, nearly 58% lower from what it carried in the same period last year — all thanks to the stigma around air travel.

Airlines want budget 2021 to lower jet fuel price and parking charges

Here’s what the experts are demanding for:


Rationalisation of various taxes

According to Kinjal Shah, vice president, ICRA, the aviation industry's deteriorating financial health has raised tax sops' expectations to help reduce their high cost and debt burden, especially lowering taxes on ATF.

The ATF comprises nearly 30-40% of the total cost of an airline, and the prices in India are 45-50% higher, compared to international standard prices, she added.

Though, ahead of the budget, the government has also hinted that it is planning on the same lines. Addressing a webinar on "Connecting the Dots-Recovery of aviation, tourism and hospitality", Usha Padhee, Joint Secretary, Ministry of Civil Aviation said, "we are working on a long-term plan to help the sector by rationalising various taxes. We are looking forward to making the ecosystem smarter and more efficient to make the aviation sector sustainable."

"The policy rejig will also help the sector in the long run, if it is hit by a similar crisis in the future," she added.

While this may incentivise and reduce the cost for the airlines over the long term, the sector still needs travellers to return to the airports.

Regaining travelers trust is most important for revival

The experts have also sought improvement in tourism experience and support related infrastructure along with other reforms to bring the travellers back to flying. Arvind Sharma, Partner, Shardul Amarchand Mangaldas & Co said, "Development of iconic tourist destinations will aid in the development of the aviation sector. And, Prioritising, affordable and safe air travel will boost air travel demand significantly."

Even the Confederation of Indian Industry (CII) has recommended that the tourism industry be brought under the 'concurrent list' by amending Schedule VII of the Constitution, thus helping both the Centre and states develop a comprehensive approach that is driven by unique needs of each state.

Reduction in other levies

The airport, parking, landing and navigation charges constitute a separate cost for the sector and the industry experts have asked for a reduction in the excessive levies along with other sops.

"In the short term, the industry requires financial aid and reduction in levies and taxes to revive operations and increase passenger traffic, and in the long term, the aviation infrastructure requirements should be addressed," said Sharma.

The CII in its pre-Budget memorandum mentioned that the government should include the aircraft components (such as computers, hardware, plastic, paints and tyres) under aircraft parts to avoid any disputes. These parts are currently assessed as per the CTH (Change of Tariff Heading) and charged at different rates.

Remove cap on fare prices

The government introduced a fare price band capping the air travel ticket prices for airlines to a minimum, in order to avoid exploitation by airlines. However, ICRA now believes that it is time for the government to remove the price band and let the airlines decide the ticket prices.

Flight timeCurrent price cap
40-60 minutes₹2,500- ₹7,500;
60-90 minutes₹3,000- ₹9,000
90-120 minutes₹3,500- ₹10,000
120-150 minutes₹4,500- ₹13,000
150-180 minutes₹5,500- ₹15,700
180-210 minutes₹6,500- ₹18,600

"Since the airlines have to currently follow a fare band as per the directives of the Ministry of Civil Aviation (MoCA), which is constraining their ability to charge higher fares, they want relaxations in terms of the fares they can charge," said Shah.

According to the agency estimates, the Indian aviation industry is likely to report a significant net loss of $2 billion in FY2021 against a $1 billion net loss in FY2020.

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