Oil prices have jumped from $22 each barrel to $85 in the last eight months, he said
There won’t be any airline in India to board if limits on domestic airfares are not increased as oil prices have jumped from $22 each barrel to $85 in the last eight months, Union Aviation Minister Jyotiraditya Scindia said on Thursday.
At the ‘Times Now Summit 2021’, he said aviation turbine fuel (ATF) is about 40% of an airline’s cost structure in the country.
Domestic air travel became costlier on August 12 this year when the Aviation Ministry raised the lower and upper caps on domestic fares by 9.83 to 12.82%.
The Ministry had increased the lower limit for flights under 40-minute duration from ₹2,600 to ₹2,900 — an increase of 11.53%. The upper cap for flights under 40-minute duration was increased by 12.82% to Rs 8,800.
On Thursday, Mr. Scindia said, “Look at what has happened to ATF prices. Oil prices over the last eight months increased from $22 per barrel to $84. So, the airline’s cost structure has gone up by four times.” “Add to that the excise duty of 11% and VAT charged by the State governments in the range of 1% to 30%. How is an airline going to survive unless it (ATF) becomes economical?” he posed.
The reason for the Aviation Ministry raising the fare bands is that airlines must be given some cushion when there is a 400% jump in the prices of raw materials. “If you are not able to give a 12.5% hike on the revenue side then you and I won’t have an airline to board,” he added.
India had imposed lower and upper limits on airfares based on flight duration when services resumed on May 25, 2020, after a two-month Covid lockdown.
The lower caps were imposed to help the airlines that have been struggling financially due to coronavirus-related travel restrictions. The upper caps were imposed so that passengers are not charged huge amounts when the demand for seats is high.
The caps mentioned by the government in its order does not include the passenger security fee, user development fee for the airports and the GST. These charges are added on top when a ticket is booked.
The August 12 order also mentioned that the limit on airfares will remain in place for 30 days at any given time. On September 18, the Ministry modified the August 12 order, reducing the roll-over period from 30 days to 15 days.
Mr. Scindia said the Aviation Ministry is trying to reduce ATF prices by asking the state governments to reduce their VAT charges.
“In the last four months, I have written to 25 chief ministers to make them understand how this VAT is holding back the States’ connectivity.
“Over the last 40 days, Jammu and Kashmir, the Andaman and Nicobar Islands, Ladakh, Uttarakhand, Himachal Pradesh and Haryana have lowered their VAT on ATF from the range of 25 to 28% to the range of 1 to 2%. I salute the leadership of these states,” he said.
Due to this, there has been much greater connectivity to these states in the last one-and-half months, Mr. Scindia added.
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