New Delhi: Airlines connecting smaller cities with Delhi under the central government’s regional connectivity scheme Udan will get cheaper jet fuel, the Delhi government said on Wednesday.
All state governments that want to participate in Udan have signed agreements with the aviation ministry to levy a tax of just 1% on jet fuel so that flying to these small and remote locations becomes cheaper and so do airfares. Jet fuel makes up 40-50% of the total cost of airlines.
The Delhi government will comply with the cap, deputy chief minister Manish Sisodia said on Wednesday in his budget speech.
Airlines typically fly A320 and B737 jets on metro routes; they are subject to a 25% tax on jet fuel. Small planes like ATRs and Q400s flown on short-haul routes like Delhi-Kanpur are subject to a 4% tax.
This effectively means a reduction of three percentage points.
“This means no real impact,” said an analyst who did not wish to be named.
IndiGo, India’s largest airline by passengers carried, which does not fly small planes, said it would benefit only if the lower tax is applicable across the board.
The move will “bring down fares for flights to smaller airports in the country,” said Ajay Singh, chairman and managing director of SpiceJet, which does have small planes in its fleet.
The aviation ministry plans to subsidise some of the plane seats on Udan routes with money from a Rs500 crore corpus raised by taxing flights on trunk routes.
The fare for a one-hour journey of about 500km on a fixed-wing aircraft or a 30-minute journey on helicopter will be capped at Rs2,500, with proportionate pricing for routes of different distances and duration.