Studies indicate that the civil aviation industry as a whole is expected to grow at 25% a year for the next five years. The sector is likey to see investments of the order of $50 billion by 2015, most of which will be used to build new airports and modernize existing ones to global standards of excellence.
Siddhanta Sharma, executive chairman and CEO, SpiceJet
A key reason for this level of investments is the estimated upsurge in passenger traffic to around 100 million passengers by the year 2020 according to one estimate. Another study pegs this figure at four times as much in the same year. The number wass around 16 million in 2006.
And it is the low-cost carriers (LCC) in the country that have spearheaded the boom in passenger traffic, having narrowed the differential between rail and air fares substantially. Despite the boom though, the LCC segment is largely combatting losses due to wafer thin margins that aren’t the product of stiff competition alone.
A large chunk of the LCC sectors concerns could be addressed in Union Budget 2008, and the Finance Minsiter might consider the following proposals:
Tax exemption to foreign pilots, technicians
Domestic airlines would definitely require foreign pilots and technicians for at least the next three years till Indian personnel hired by the industry are in a position to replace them. The industry has to compete for trained pilots with airlines operating in the Middle East and Far East, which either have a nil or very low tax regime.
Given this scenario, airlines in India have to absorb the taxes to be able to attract pilots. The government could consider exempting foreign pilots and technicians from tax for a limited period, say three years, by which time the domestic civil aviation industry should be self sufficient with trained Indian personnel.
Rationalization of taxes on ATF
Aviation turbine fuel prices in India are 60-90% higher than those in the international market. This artificial difference has been created primarily by Central and State taxes. State taxes, which vary from 4%-38%, are biggest contributor to the price levels. The percentages of tax, both at Central and State levels have remained the same although crude prices have nearly doubled. At the same time, ATF off-take has also increased substantially due to the larger number of aircraft in the country today.
ATF today forms 46% of the total operating cost of Spicejet. Industry representations to the states to lower taxes have not yielded any results in the past two years. It is the right time for the central government to step in and classify ATF as a declared good, which attracts a uniform sales tax of 4%, to ensure that aviation growth in the country doesn’t falter and the industry regains good health.
Lack of decision in this direction would greatly hamper the contribution the airline industry could have made in the growth of the nation.
Allow foreign airline investments
Domestic aviation players, especially the low cost airlines, and the Planning Commission have been pressing the Government to have a re-look at the policy of barring foreign airline investment in the domestic industry. There is a need to allow strategic investors, including foreign airlines, to invest in India’s civil aviation.
Fringe benefits tax
Fringe benefits tax on accommodation provided to the crew is an extra cost to the airlines without any justification. The crew is required to operate flights from various airports in the country and need to be positioned there. The crew is also subject to strict duty time limitations and rest requirements. Provision of accommodation is an integral apart of operation of the airlines and by no means has any ‘fringe benefit’ in it. Accordingly, FBT on crew accommodation should be abolished.
The author is executive chairman and CEO, SpiceJet