The Federation of Indian Airlines (FIA), representing major carriers Air India, IndiGo, and SpiceJet, has issued an urgent plea to the government, warning that the airline industry in India is under extreme stress and on the verge of closing down or stopping operations. The SOS seeks immediate intervention in aviation turbine fuel (ATF) pricing.
Background of the Crisis
With crucial assembly elections underway, the government had capped the hike in base price of ATF for domestic flights to 25 percent in April, while international flights saw a hike of over 100 percent. The monthly revision for May is expected later this week.
Airlines are requesting rational ATF pricing, a temporary suspension of the 11 percent excise on ATF for domestic operations, and a reduction in VAT rates in key states. According to the FIA, Delhi, India's largest aviation hub, has the second-highest VAT in the country at 25 percent, while Tamil Nadu has the highest at 29 percent. Other major hubs like Mumbai, Bangalore, Hyderabad, and Kolkata have VAT rates ranging between 16 and 20 percent. These six cities account for more than half of the airline operations within India.
Impact of ATF Costs
ATF previously accounted for 30 to 40 percent of airlines' costs, but after the April hike, this percentage has increased to 55 to 60 percent, creating what the FIA describes as completely inoperable conditions. The depreciation of the rupee has further exacerbated the financial strain.
In a letter to aviation secretary Samir Sinha, the FIA emphasized that the dire condition of the aviation sector has been worsened by the West Asia war and the exorbitant increase in ATF prices. The letter states that airlines are in a very difficult, precarious, and challenging situation, having managed operations so far despite rising costs and additional expenses due to airspace closures.
Call for Financial Support
The FIA is requesting urgent and meaningful financial support to help airlines survive, sustain, and continue operations. They point out that while there is a price control mechanism for other fuels like diesel and petrol, such a mechanism is missing for ATF. The price of ATF is significantly high compared to its production cost, and ATF constitutes only 4 percent of India's refinery production. Of that, only 30 percent is consumed by domestic airlines and 20 percent by international carriers, with the remaining 50 percent being exported.
The FIA warns that high ATF prices will result in insurmountable losses for airlines, leading to the grounding of aircraft and cancellation of flights. Immediate government intervention is deemed critical to prevent a collapse of the aviation industry.
