Budget cripples airline wings

Budget cripples airline wings

The Indian airlines limping back to normalcy after gruelling economic meltdown has received further set backs in Budget 2011. Union budget 2011-12 has proposed to raise the service tax on air travel by Rs50 in the case of domestic air travel and Rs250 on international journeys by economy class. It also proposed to tax travel by higher classes on domestic sector at the standard rate of 10% to bring it on par with journeys by higher classes on international air travel.

“Air travel has become more expensive though there has not been a change in the rate of service tax. The major impact being on premium class travels in the domestic sector, which will no longer be chargeable to tax at a fixed rate (previously 100) but at the applicable rate of service tax of 10.3%. Separately, the fixed service tax amounts on economy class air travel has been enhanced from 100 to 150 for domestic and from 500 to 750 for international journeys," said Saloni Roy, partner (infrastructure practice) at consulting firm Ernst & Young.

According to Vivek Nair, vice chairman and managing director The Leela Palaces, Hotels and Resorts and chairperson of the World Tourism and Travel Council India Initiative (WTTCII) said this levy will directly affect both foreign and domestic tourists as it will increase the cost of tour packages.

A senior executive at country’s largest airline by passengers carried Jet Airways (India) Ltd said his airline will be forced to pass on the hike to passengers. He did not want to be identified.

On the Bombay Stock Exchange, or BSE, the scrip of Jet Airways (India) Ltd lost 0.94% to close at 415.45, SpiceJet Ltd dropped 4.76% to close at 38 and Kingfisher Airlines Ltd lost 1.56% to close at 37.75 on Monday.

According to Peter Kerkar, director, tour operating firm Cox and Kings Ltd, the increase in service tax for air travel will not have an impact as the travel industry is growing at double digits and the hike is minimal especially for domestic travel. Airfares have been climbing for the last three months due to increase in fuel prices, but this has not made any difference to people and they continue to travel.