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Airlines should cut prices: Praful

With domestic air traffic at a five-year low, the men who run India’s two largest private airlines said they would not cut airfares — even as the civil aviation minister urged them to, reports Samiran Saha. See Special | Webcast of Patel, Goyal & Mallya's speech

india Updated: Nov 23, 2008 00:24 IST
Samiran Saha
Samiran Saha
Hindustan Times

With domestic air traffic at a five-year low, the men who run India’s two largest private airlines said they would not cut airfares — even as the civil aviation minister urged them to.
Civil Aviation Minister Praful Patel hinted at a Rs 1,200 crore bail out package for Air India that is suffering huge losses on account of high ATF prices.

"We are working out on a bail out package for Air India and it will in the form on equity," Patel told on the sidelines of the Hindustan Times summit.

On being asked if Air India would also reduce fares Patel said "as there is no regulatory frame work and fares are driven by market dynamics, Air India being a responsible airline will decide for itself, (about bringing down the fares)," Patel said.

Air fares have almost doubled in the past one year on account of high ATF prices, low demand due to a global economic meltdown.

“There is a perception that the government is helping you tide over the difficult times,” said minister Praful Patel on the second day of the Hindustan Times Leadership Summit on Saturday as he referred to the drop in aviation fuel prices. “You must match that perception with lower fares for passengers.”

Jet Airway Chairman Naresh Goyal and Kingfisher Airlines Chairman Vijay Mallya — their companies are in an alliance that controls more than half the market — wanted more sops from the government, including a cut in “inordinately high taxes”, as Mallya put it.

"We understand business and the concept of revenue management,” said Mallya, with some sarcasm. Air fares have almost doubled over the last year.

Mallya argued that the depreciating rupee had increased costs of plane leases and equipment and wiped out the benefits of the fuel-price cut. Goyal offered to open his books for a government-audit—to confirm their beleagured state.

"I certainly would not like to close my company,” Goyal said. “The government can set up a regulator and we will show our books in a transparent manner."

Patel said his government was examining how to reduce taxes on jet fuel but warned that if these benefits too were not passed on, the aviation industry would “lose sympathy” from policy makers and the public.

With each state levying its own taxes on aviation fuel — from four per cent to 30 per cent — India is one the most expensive places to tank up for airlines. Patel acknowledged much needed correction.

"The taxation policies (on aviation fuel) are wrong,” said Patel. “We still fail to acknowledge that air transport is a mode of public transport." He said a regulator to monitor and recommend fares was against free-market principles.

"This industry is a by-product of deregulation,” said Patel. “It will continue to remain as a completely deregulated sector," he said.

"We understand business and the concept of revenue management. Airlines will face difficulties so long as the bogey of high taxes on ATF exists," Mallya said.

Bhave: India will be among the first few to recover | Tony Blair: Global effort needed to tackle present economic crisis


Dostana betweem Mallya and Goyal
The triumvirate of civil aviation, Praful Patel, Naresh Goyal and Vijay Mallya chose not to lose any opportunity to take digs at each other at the Hindustan Times Leadership summit. When the moderator HT Editor in Chief Sanjoy Narayan said the alliance between Jet Airways and Kingfisher Airlines is almost like Goyal and Mallya going to bed together, Goyal in turn, said "We do not go to bed together, as we still love girls."
The three were left red in the face but the audience had the last laugh.

In high spirits
Liquor baron and the king of good times, Dr Vijay Mallya had a child like desire when aviation turbine fuel was touching dizzying heights and reached $ 147 making airline operations very impractical and unprofitable. "I always wished if aircraft could fly on whisky it would have been fantastic, but that is not the case," he said. "When people ask me why am I in the business of spirits and in aviation at the same time I tell them because both – my spirits and my airline makes people fly high."

First Published: Nov 22, 2008 16:52 IST