A plan to save our ailing airlines
The shutting down of Jet Airways, one of Asia’s largest airlines is symptomatic of a larger disease bedevilling India’s skies. Most, if not all, of India’s airlines will be reporting losses for the financial year 2018-19, partly because of high taxes imposed on jet fuel and partly because a blistering competition has kept airline ticket prices down for much of the past few years, bleeding airlines even as it has filled seats. Aviation consultancy CAPA estimates airline industry-wide losses in India were around $1.7 billion in 2018-19 and could be between $1-1.2 billion in the current year.
With crude prices rising, these losses may rise. Aviation turbine or jet fuel is arguably costlier in India than in most countries, mainly because of high taxes—11 per cent central excise and an average state value added tax between 20-30 per cent. Globally, fuel costs account for an average 22.4 per cent of the total costs. In India it varies between 35-40 per cent of income.
A simple exercise in reducing the tax burden on the aviation sector will allow the ‘Golden Goose’ to fly better. Unlike many nations, India does not subsidise its airlines. American carriers benefit from general revenues that flow into the airport and airway trust fund, and avoid ticket taxes on billions of dollars in revenues by labelling part of the ticket price as ancillary fees and carrier-imposed charges.
Reports similarly claim that Chinese airlines receive state subsidies from municipal governments including Beijing, Shanghai, and Guangzhou which accounts for most of China’s international flights. In a true free market economy, subsides to a particular sector are abhorrent.
Many argue that aviation is a ‘special’ sector and its health is tied up with public good and national interests, hence subsides are in reality for the greater good. India of course is a revenue deficit nation where most people still consider flying a luxury and subsidies may well be out of place in such a milieu. However, a plan to save our ailing airlines by slashing taxes may not only not be out of place, but perhaps the need of the hour.