Domestic airlines are expected to raise economy class fares by Rs 400-480 per ticket after the imposition of 10 per cent service tax on the base fare and restoration of 5 per cent excise duty on aviation turbine fuel (ATF). The impact of the latter, however, will be marginal.
At present, service tax is imposed only on tickets for business class and above categories. According to industry estimates, the government will be able to generate an additional Rs 1,200-1,300 crore through this measure. The basic fare of domestic carriers varies from Rs 3,400 to Rs 4,000.
The excise duty on ATF will impact prices by Rs 100 per ticket, say industry officials. The duty will increase airlines’ costs by 2 per cent as ATF accounts for around 40 per cent of operational costs.
“Imposition of service tax on economy class tickets is a bigger concern than the excise duty on ATF. Both of these will impact us, especially as the industry is just coming out of the woods and showing signs of growth,” said Ajay Singh, director of SpiceJet.
The oil companies say the excise duty will lead to a Rs 1,400 per kilolitre increase in ATF prices.
“Tickets will become costlier by around 15 per cent. Out of this, 10 per cent hike will be on account of higher service tax,” said Paramount Airways Managing Director M Thiagarajan, who heads the Confederation of Indian Industry’s committee on aviation.
Others say the honeymoon on fares is over. “The current hike in air fares due to the hike in jet fuel prices could be in the range of 5-7 per cent. We see a second set of hike coming,” said the head of online sales at MakemyTrip.com, an online travel portal.
Airlines are seeing recovery after long. By the end of the third quarter of this financial year, the losses of three listed airlines — Jet Airways, Kingfisher Airlines and SpiceJet —fell 37 per cent to Rs 205 crore from Rs 645 crore during the same period last year.
Low-cost carrier SpiceJet and Jet Airways improved their financial position and incurred profit but Kingfisher increased its losses to Rs 420 crore from Rs 413 crore during the same period last year.
