Turbine thrust

Updated: May 26 2007, 05:30am hrs
At time when air travel has become the default mode of travel for a large number of urban Indians, any move to reduce airfares is a salutary step. To its credit, the government has consistently adopted growth-oriented policies for the civil aviation sector, and if the latest plan goes through, then another major grouse of domestic airlines would have been addressed. Industry reports say aviation turbine fuel (ATF) prices in India are almost 70% higher than international prices; this is largely on account of heavy taxation, including sales tax imposed locally by states. By allowing airlines to import the fuel in bulk directly themselves, at much lower landed cost, the government proposes to help them make savings on something that occupies a disproportionate share of the overall operating costs.

The move should be welcomed wholeheartedly by those who want the sector to experience truly competitive pricing (in a market with the number of players limited by constraints of physical infrastructure, air corridors and the like, cartelised pricing is an ever-present danger). To the delight of frequent fliers, however, domestic airlines have actually been engaged in price wars these past few years. But some have been badly bruised in the process (even Indian Airlines has suffered huge losses), and if they succumb to their injuries, the sector may find itself drifting towards oligopolistic ills. Reduced ATF prices make more operators viable. This is good for the state of competition and for customers. Yet, it would be premature to celebrate. The ATF proposal still has to travel the length of the bureaucracy before it can become operational. Several clearances are required from separate ministries. Also, this has implications for state revenues, so some of them may want to throw a spanner in the works. The other issue is that most airlines other than Indian Airlines do not have the requisite ATF storage facilities, and will therefore have to invest in this to take advantage of the freedom. So, if implemented, as we hope, the move should not be under any threat of reversal.