Why fare's foul | india | Hindustan Times
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Why fare's foul

Air fares have crashed, you think.You have seen nothing yet. But, if the government doesn't wake up, you may not see it at all. The basic price comparison for air fares should be with AC-II tier rail fares - the travelling option for the Indian middle class.

india Updated: Jan 22, 2006 23:40 IST

Air fares have crashed, you think.You have seen nothing yet. But, if the government doesn't wake up, you may not see it at all. The basic price comparison for air fares should be with AC-II tier rail fares— the travelling option for the Indian middle class. As the comparative chart shows, even low cost carrier fares cannot compete with AC-II tier travel. Competition in civil aviation— Air Deccan, Kingfisher Airlines and SpiceJet will be joined by three or four more LCCs — will bring down fares by another 15-20 per cent in the next 12 months.

But the floor is fixed for air fares because 30 per cent of the cost of a passenger ticket goes towards paying for aviation turbine fuel (ATF) (see box Aerial Bur dens). ATF costs almost twice as much in India com pared to the West and East Asia.

Add a slew of taxes — 10 per cent customs duty, 20 per cent levy on ex-refinery prices due to the import parity principle, 8 per cent central excise duty, 4-39 per cent state sales taxes and 16 21 per cent marketing charges by state run oil companies — and you get a fat fuel bill.

The second fixed cost element that hurts Indian passengers is airport user charges. These are almost 60 per cent higher in India compared to the international average.

To cut ATF charges, aviation experts suggest private oil companies be allowed to supply the fuel. Also, the central sales tax must be 4 per cent, as the VAT committee had agreed, and state sales taxes should be a uniform 4 per cent.

Airport user charges are determined by quasi-government fiat. If airports are modernised/privatised, charges may come down via competition and by airports earning more from non-core operations, like leasing commercial space.

The other problem in India is low credit card usage and low Internet penetration. This prevents widespread net bidding for tickets, a model LCCs have adopted in the West. The next section gives you a thumbnail guide on how to look for cheaper fares, as you wait for the government to reduce taxes and charges.