Flying out of the fuel trap
Naresh Goyal’s problems with his bleeding airline are fairly representative of the troubled times facing Indian aviation, yet his responses stand out for being bolder than those of his peers.india Updated: Nov 25, 2008 19:55 IST
Jet airways is back in the news, this time with pay —and not job — cuts. Naresh Goyal’s problems with his bleeding airline are fairly representative of the troubled times facing Indian aviation, yet his responses stand out for being bolder than those of his peers. Demand is falling and costs are rising, logically requiring airline bosses to take the axe to the latter. But where State-owned Air India and competitor Kingfisher Airlines are waiting for jet fuel prices to be extricated from a thicket of state levies before they lower fares, Mr Goyal’s attention is focused on his wage bill, which is nearing a quarter of the cost of running his airline. If fares do come down in the near future it would be largely on account of the cyclical downturn in oil prices.
Now, Mr Goyal is not a particularly brave man as corporate chieftains go — the political brouhaha over Jet Airways’ decision last month to sack 800 cabin crew must still be fresh in his mind — but he is fast running out of options. Fuel and wages soak up 75 per cent of his operating expenses, and till such time as taxes on aviation turbine fuel are brought down to a flat 4 per cent, airlines are well employed in putting their house in order. Particularly Jet Airways, which, as a stand alone airline despite being the market leader, does not have the comfort of leveraging the UB group’s substantial balance sheet. Or, for that matter, the balance sheet of the Government of India.
The tax that states levy on jet fuel — as high as 30 per cent — can be rolled back only after the Centre devises a mechanism to reimburse the Rs 3,500 crore they stand to lose — a drawn-out legislative process. Finance Minister P. Chidambaram is ready to foot the bill, provided a political consensus emerges. Which is easier said than done; it will be difficult to get the Left on board. The ‘declared good’ status for jet fuel will bring it at par with cooking gas, which is actively subsidised by the government. Neither diesel, on which runs the lion’s share of India’s transportation industry, nor natural gas, the fastest growing energy source for our power plants, enjoys this privilege. As the government exhorts industry to lower prices, and airlines clamour to get fuel exempted from State levies, Mr Goyal would do well in the meanwhile to sell his pilots the idea of 5 to 25 per cent pay cuts.