Private Airlines- which started operating for the first time in 1992, after the Narasimha Rao Goverment’s liberalization move led by the then finance minister Dr.Manmohan Singh- threatened to suspend operations on 18th August’2009 to protest against the Manmohan Singh Governemnt’s apathy to cut Taxes on Aviation fuel which these airlines has been demanding for over a year.
Private airlines have incurred phenomenal losses during financial year April’08 to March’09. The losses for the largest private airlines, ‘Jet Airways’ stand at about Rs.960 crores over sales of about Rs.12650 crores while that of ‘Kingfisher’ stands at about Rs.1600 crores over sales of about Rs.5270 crores. Other smaller airlines too have incurred losses of varying degree. The total losses in the private sector flight industry stand at over Rs.10000 crores during the last financial year.
The government owned Air India too has suffered losses but that is a different story. The Air India’s director communications Jitendra Bhargava was critical of private air operators who according to him were responsible for offering low fares that led to this state of affair. He was very critical when he commented, “You reap what you sow,” hinting that it is the private air operators who were squarely to blame for stating a low fare war (which progressively reduced the fares as competition got out of hand).
The air operators are upset over the quantum of Value Added Tax (VAT) slapped on aviation fuel and ranges from 4% in Andhra Pradesh to a high of 25% in Maharastra’s busiest airport Mumbai and Pune. In Bengal too the VAT is charged at 25%. Tamilnadu and Bihar charges as high as 29% VAT on aviation fuel.
Air operators want that the aviation fuel be made ‘declared good’ so that a uniform 4% VAT can be charged across the country. However aviation minister Praful Patel feels that as the VAT is a state subject, the central government can not reduce VAT on its own. The states have however been opposing reduction of VAT on aviation fuel as it gives them substantial tax revenue.
Your reporter is of the opinion that a cutthroat competition for getting higher occupancy and in attempting to compete with Indian Railway Air Condition First Class fares, the private airlines have taken a suicidal path and now even 75% load factor may not be good enough for a turnaround in the aviation industry. The Aviation fuel prices are not very high at present and is about half the value it had when the international price of crude soared to $147 in July last year. So ball is in the court of private air operators and instead of hoping for charity from government they better learn from management books to avert financial crisis. The mismanagement is quite apparent from the loss figures. While ‘Jet Airways’ losses are about 7.6% of sales, that of ‘Kingfisher’ is 30.3%. So while Jet Airways can make a turn around by simple cost cutting, part fleet grounding measures etc, this cannot be said of Kingfisher, which probably requires charity!