GoM to study ATF price impact on aviation sector

GoM to study ATF price impact on aviation sector

New Delhi: A group of ministers (GoM) would be set up soon to study the impact of high jet fuel prices on the aviation industry and recommend measures to bring down its burden on the operational costs of the airlines.

This was decided on Thursday at a meeting of the Union Cabinet, chaired by Prime Minister Manmohan Singh, where civil aviation minister Praful Patel made a presentation on the health of the aviation sector.

After the meeting, Patel said the GoM, to be set up soon by the Prime Minister, would focus on the “very high nature" of sales tax being imposed on aviation turbine fuel (ATF) by various state governments as also its base price, which was “much higher" than most countries.

ATF accounts for over 40% of the total operational cost of an airline in India, compared with 20-25% globally.

The minister said he briefed the Cabinet on the need for additional capital infusion in Air India, which currently has an equity base of only Rs145 crore and has ordered planes worth over Rs50,000 crore.

He also informed the meeting about the decision of Airports Authority of India to raise funds by issuing infrastructure bonds worth Rs5,000 crore. AAI is modernizing and upgrading a large number of airports throughout India, including those in Kolkata and Chennai.

On airport charges described as "very high" by the airline industry, Patel said these accounted for 7-8% of their total operating costs and the rates in India were “comparable" with those worldwide.

India has emerged as the ninth biggest aviation market in the world, but was “still the least penetrated", he said, adding the country accounted for 0.02 air trips per capita, compared with 0.1 in China and 2.2 in the US.

This reflects the “big opportunities" which exist in the country in the sector which is estimated to grow at the rate of 8.5% per annum by 2015, the minister said.

The overall aviation industry accounted for $14 billion in terms of revenues and investments of all airlines while Indian Railways accounted for $18 billion, he said.

While the number of planes in India had gone up from 158 in 2003-04 to 396 now, domestic flight departures per week had risen from 5,108 in 2003-04 to 11,048 in 2008-09.

Pointing out that average yields of the airlines had gone down due to the global financial downturn, Patel said the average airline ticket price had fallen from ,035 in 2003 to 3,956 in 2008 while variable costs like that of ATF kept rising.

As a result, the number of flights operated by all airlines had fallen by 12.5% in 2009, while passenger traffic had risen from 28.5 million in 2003-04 to 69.6 million in 2007-08 and stabilised at 70.1 million in 2008-09.