This refers to ‘2009 versus 2008’, January 2. I think passengers might have to wait to see how fares turn out in 2009. I have a couple of points to make in this connection.
The aviation market has had overcapacity ever since the aviation boom hit the Indian skies. This overcapacity existed even in 2007-08. Carriers were running losses at that time as well. The only factor that kept airlines’ management blindfolded to these losses was the huge market growth.
Huge aircraft orders were put in place because, while looking at things from a long-term perspective, each and every aviation analyst was including a constant 30-35 per cent growth figure over a period of, let’s say, ten years, in his calculations. No one realised that these figures were unrealistic just on account of the existing airport infrastructure to handle the load of passenger traffic. But everyone — from the airlines to the media, from aircraft suppliers to aviation experts, from commercial banks to investors — seemed to believe in these figures.
Be that as it may, Indian carriers realised, or one should actually say, accepted their mistakes only in mid-2008, when their bank accounts had no cash and there was no way left for any airline manager to convince debtors/investors that airlines still had a future. Most of this coincided with the hike in fuel prices, of course, but the crude prices were only a catalyst to an inherent problem of the industry.
Looking at the future, efforts by the government to alter the tax regime may be the final antidote that airlines are looking for, but I have my doubts as to the extent to which that will help.
The tax was always high but it was only when crude prices hit the $150 mark that you started hearing voices against the sales tax on ATF. Let’s assume that ATF is selling at $170 and the tax on ATF is 30 per cent. What hurts airlines the most is the $51 per barrel they have to pay to the government as tax. Now let’s assume ATF prices are down to $50 per barrel. The tax then comes down to $15 a barrel, less than one-third the peak-period payout. So, if tomorrow, the government changes its policies and declares a flat 10 per cent tax on ATF, the savings airlines will get will be $10 a barrel.
Airlines will argue, and correctly, that a saving of $10 a barrel is hardly enough to offset their current losses, let alone be a reason for a further drop in ticket prices. So, the passengers, according to me, might have to wait a little longer before some sense prevails across all stakeholders.
Piyush Bansal, via email
