The State must help the aviation sector take off
The burden on the Indian traveller will be unbearable. Clearly, the country’s airlines at the moment aren’t in a position to absorb the import duty hike on fuelUpdated: Oct 04, 2018 12:38 IST
American musician and activist Frank Zappa once said, “You can’t be a real country unless you have a beer and an airline.” India has six even though a beer airline shut down a few years ago. With Brent Crude oil touching $82 in market trade, the Indian rupee breaching 73 and the inexplicable inclusion of aviation turbine fuel (ATF) as a dutiable Item by the government, poor Frank must be rolling in his grave because should this phase continue, we might be left with only beer.
Indian aviation is possibly entering one of its toughest phases ever: more intense than what we saw in 2008 and nothing is being done to soften the blow. The inclusion of GST in the aviation and airline services raised the effective “access-to-aviation” cost earlier this year. Add to that the rise in fuel and currency and an unwanted import duty inclusion as the festive season approaches. The burden on the Indian traveller will be unbearable. Clearly, the country’s airlines at the moment aren’t in a position to absorb the import duty hike on fuel.
The government must understand that aviation, airlines and airline services are not luxuries accessible to a select few. With India being the world’s third largest aviation market, air travel is now a transportation medium that’s driven by market dynamic, consumer needs and fragmented by regions to the point that each state has its unique aviation needs. On that note, the first causality as a result of the import duty inclusion and oil price hike within the next two weeks should be the BJP government’s Regional Connectivity Scheme, Ude Desh Ka Aam Nagrik, or UDAN. The scheme, which was intended to help the common man access flying by means of a one-hour trip costing Rs 2,500 (limited to a select seat inventory), is now clearly not doable, unless the central government and the state are willing to shell out more subsidy.
Our airline industry isn’t in its best shape either. The failure, or unlikely event of closure of Jet Airways, will have a catastrophic effect on air transport in India as we know it. The sudden vacuum of one airline dropping out from the market will lead to a dramatic air travel demand and a surge in ticket pricing leaving travellers stranded with fewer options to fly into tier 3 and tier 4 towns, more than 4,000 jobs being axed and collective revenue losses for airport operators and the Airports Authority of India. It is also likely to affect Air Navigation Service Revenue and the humble stockholder who put his precious life savings into the airline’s stock. The loss to the exchequer will also be sizable in nature with the dip in import duty earnings, GST, tax collections and weaker demand for jet fuel.
The next six months are crucial for Indian aviation. The dramatic rise in operating costs from jet fuel and import of aircraft spare parts and consumables, since none of those continue to be made in India, will affect nearly all airlines and operations across the country. Differential aviation fuel pricing in each state owing to applicable VAT, levies and surcharges further stands to affect how India’s narrowing middle class travels. In a worst case scenario, air travel might once again end up being looked upon as carrying out the purpose it served back in the 1980s, which was in an emergency or urgent travel medium with rail being the first port of call for the middle class Indian. In that decade, air travel was a luxury limited to the business and trader community.
The government needs to step in, and step in now, and lower GST on air travel, roll back on the import duty inclusion on jet fuel and eliminate some of the levies that are on aviation-related goods that dramatically affect operating costs. The timing of imposing import duties on jet fuel just when the price of oil is nearly at its peak is baffling.
As for the industry, it’s in wait and watch mode. For travellers, it may be a time to revisit expenses with the upcoming festive season. Aviation cannot afford any further casualties. We’ve already lost Kingfisher Airlines, Paramount Airways, Air Costa and Air Pegasus and certainly can’t afford to lose Jet Airways — at the cost of operating expenses.
Clearly, bad weather and turbulence lie ahead: it’s time to fasten your seat belt.
Mark D Martin is founder and CEO of aviation consultancy firm, Martin Consulting
The views expressed are personal