Airlines wary of levying Udan cess on passengers

The estimated Rs400 crore collected per year as a result of this scheme, called Udan, will be paid to airlines that agree to fly to remote locations


Airlines think that levying of Rs50 per passenger Udan cess may dampen the already declining demand. Photo: HT
Airlines think that levying of Rs50 per passenger Udan cess may dampen the already declining demand. Photo: HT

New Delhi: Airlines may delay the levy of a new Udan cess on airfares due to take effect in December, factoring in legal uncertainties and expectations that passenger traffic would decline following demonetisation of high-value bank notes.

The civil aviation ministry has introduced a charge of up to Rs8,500 on every plane landing from December to subsidise its plan to improve connectivity to remote towns.

The estimated Rs400 crore collected per year as a result of this scheme, called Udan, will be paid to airlines that agree to fly to such locations.

Airlines had been expected to pass on the cost to passengers. On a 180-seater Airbus A320 plane—flown by many budget airlines—the cess would have come to about Rs50 per passenger.

But now, according to three senior airline executives who spoke on condition of anonymity, the airlines have had a rethink. “There is no clarity on whether this is a tax and if we can apply it directly under statutory rules,” said one of the officials, referring to the fact that the Udan charge is being applied per landing.

The airlines are now looking at it from three angles.

One, to absorb the cess without introducing a new charge on the ticket and expanding the already long list of items like passenger service fee, airport development fee, Swachh Bharat cess and Krishi Kalyan cess on the airfare.

Two, they think they can take the civil aviation ministry to the courts. That’s because they say the levy has been introduced by an order from the ministry while any cess has to be approved by Parliament.

It is unlikely, said one of the officials, that the airlines will get a stay from the courts on this plea. “But we will be able to convey our strong displeasure to the government for this new levy that they have introduced,” this executive said.

The ministry will simply run a small amendment through Parliament.

Finally, the airlines also feel a new cost component, which will become part of the fare, may dampen passenger demand even further.

Already airlines have been hit hard by the demonetisation drive, which has forced them to bring airfare sales usually offered after 10 January into the peak third quarter.

Bookings have dropped for some airlines by as much as 16% compared to the week before 8 November, Mint reported on 24 November.

IndiGo, SpiceJet, Jet Airways, Air India, GoAir and Vistara did not respond to an email seeking comment on the matter.

An analyst said the broad contours of Udan are still not in place.

“I am not very sure the operational structure required is in place,” said Kapil Kaul, South Asia CEO at aviation consulting firm CAPA.

The Udan cess will be the second such subsidy to promote regional connectivity. Already there are existing guidelines in place that ask airlines to connect remote towns and place operating and financial burden on passengers/ Indian carriers.

That may invite questions whether two subsidies are legally tenable, Kaul said, adding that while well intentioned, Udan is not practical and needs a rethink.

“Ministry of civil aviation is trying to make it (Udan) look good,” he said, “And it is not particularly interested in a successful outcome (of the regional connectivity policy).”

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