Govt in a tizzy as airlines, airports ready to hike fares and user development fees

New Delhi: With the empowered committee of State finance ministers letting off steam on the issue of lowering sales tax on aviation turbine fuel (ATF) charging airlines with not passing on benefits from lower taxes to passengers, airlines have now upped the ante by informing the aviation ministry that they need to hike fares by 20-25% (Rs2,000 on an average) to cover operational costs. They have pointed out that the hike is necessary, keeping in mind the current high price of ATF.

On Monday, the GMR-backed Hyderabad International Airport (P) Ltd (HIAL) also informed the  government that it proposed to charge user development fees (UDF) from domestic passengers. The infrastructure major has proposed a levy of Rs600 for all outbound passengers flying to anywhere out of Andhra Pradesh. As for those flying within the state, a fee of Rs350 has been proposed. On government request, the GMR Group had postponed its right to levy UDF on passengers on the launch of the new Shamsabad-located airport by a period of three months.

With the airport being launched on 23 March, the three month moratorium comes to an end on 23 June.

It appears that domestic airlines have informed the government that even if States should lower sales tax on ATF, they are not in a position to lower surcharge. They have also said that should ATF prices climb further then the increase in fares will be higher than the proposed 20-25% slab, while fuel surcharge may exceed current levels of Rs2,900.

If airlines had found themselves in a position to pass on benefits from lower taxes to passengers then the task of the ministry in convincing the States to implement lower ATF taxes would have become easier. Faced with the prospect of posting a collective loss of Rs8,000 crore in fiscal 2008-09 domestic airlines do not appear to be in a position to oblige.

As with the airlines, so with airport developers. The government may be considering asking infrastructure company HIAL to lower its UDF rates, keeping in mind that passengers are already shying away from air travel and domestic traffic growth is now down at single digit levels.

But GMR officials point out that the company originally intended to charge a UDF of Rs750 for all outbound domestic passengers, which amount has been lowered substantially now. They say that the  huge investment made on developing the airport has to be recovered and UDF is an essential  component in the revenue structure.