Small-town India takes off with sharp ATF cuts

Aug 21 2014, 04:13 IST
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States such as West Bengal, Jharkhand, Chhattisgarh and Madhya Pradesh have slashed the value-added tax on aviation turbine fuel. (AP) States such as West Bengal, Jharkhand, Chhattisgarh and Madhya Pradesh have slashed the value-added tax on aviation turbine fuel. (AP)
SummaryWest Bengal, Jharkhand, Chhattisgarh and MP have slashed the value-added tax on ATF.

With airlines having dropped fares and added flights to

several minor airports across the country, small-town India is flying high. Carriers have been able to trim fares and start more flights to destinations like Bagdogra and Bhubaneswar thanks to the enormous savings that they’re making on the price of jet fuel.

States such as West Bengal, Jharkhand, Chhattisgarh and Madhya Pradesh have slashed the value-added tax on aviation turbine fuel (ATF), the consequence of which has been a big jump in flights, leading to a sharp increase in passenger traffic.

So enthused are some airlines by the cost savings that they have started international connections from these airports — SpiceJet, for example, launched a Kolkata-Bagdogra-Kathmandu route last week.

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Had SpiceJet flown directly from Kolkata to Kathmandu, it would not have got the benefit of lower-priced ATF. SpiceJet chief operating officer Sanjiv Kapoor says the airline will continue to explore ways to operate more flights to stations with low ATF taxes.

In Raipur, the airport has run out of storage capacity for jet fuel after demand jumped sixfold following the cut in the VAT on ATF to 4%.

But nowhere is the evidence more compelling than at West Bengal’s Bagdogra airport, which doesn’t levy any VAT on ATF.

The airport clocked a huge 64% year-on-year rise in passenger traffic in April-May because the number of flights has gone up by 37% over the previous year.

To be sure, the growth comes off a low base, but is nevertheless way above the national average of 5% and 6% during the period, as reflected in data from the Airports Authority of India.

The move to drop the VAT on ATF appears to have been a win-win situation: Airlines are tanking up cheaper and passing on the gains to passengers in the form of lower fares, in the process flying more passengers.

Says an airline executive, “Ticket prices have fallen by R1,000-2,000 and this has encouraged more people to fly. Bhubaneswar is a good example of more flights having been added.”

As Amber Dubey, partner and India head of aerospace, KPMG, points out, the highest growth in year-on-year traffic in May was recorded at Bagdogra (55%) and Ranchi (32%), where the tax on ATF has been slashed to 0% and 4%, respectively.

The states are benefiting from the increase in associated economic activity with the multiplier effect kicking in. Larger investments in the aviation infrastructure in these

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