The civil aviation ministry is considering a slew of fiscal incentives for stakeholders across the country’s fledging aviation industry.
The civil aviation ministry is considering a slew of fiscal incentives for stakeholders across the country’s fledging aviation industry to reduce operating costs for airlines, rationalise air fares and realise its objective of enabling the common man to fly at least once a year.
The concessions are part of the draft aviation policy that is awaiting approval from the Ministry of Finance and the Prime Minister’s Office (PMO).
“The ministry is looking at tax waivers to incentivise stakeholders across the value chain. These concessions would be provided for a specified period of time. The growth in the sector would be evaluated thereafter and the tax breaks realigned. The objective is to rationalise operating costs and thereby reduce air fares which would enable every middle class family to fly at least once every year,” said a government official who did not wish to be identified.
Indian airlines have piled up cumulative losses of up to $10.6 billion in the seven years running up to 2014. The ensuing years have seen apart from Kingfisher Airlines, Air Deccan, Deccan360, MDLR, IndusAir and Paramount Airways wrap up operations. No-frills carrier SpiceJet too was set to down shutters in December last year prior to original promoter Ajay Singh taking over the financially strapped airline from media baron Kalanithi Maran.
The operating environment continues to be challenging. High taxes on aviation turbine fuel, or ATF, have made its price in India among the highest in the world. Fuel comprises around 50 per cent of an airline’s operating expenses.
To add to it, the salaries of pilots have risen sharply and international airlines have often raised concerns about the high airport charges in India. AirAsia India, for one, had initially said it would not fly to Delhi and Mumbai citing steep charges and only recently considered revisiting these options due to traffic considerations. Also, one sector — Delhi-Mumbai — accounts for the bulk of the traffic in the country.
Also, Indian carriers today prefer to get their fleet serviced in places like Colombo, Singapore, Malaysia and Dubai due to the prevalent tax structure in the country, which makes MRO operations up to 50 per cent costlier. The MRO industry can double in size to clock business of $1-1.5 billion by 2020, if the tax structure is set right.
“A lot of the incentives being looked at are subject to the approval of the PMO and the finance ministry. However, the objective is to provide fiscal incentives to fuel growth. The scale of operations will make viable the economics eventually,” added the official. The civil aviation ministry has been extremely tight-lipped about the proposals in the new aviation policy due to pending approvals from related ministries.
Industry observers believe there is a huge upside for the sector in India in the long run if operating fundamentals are set right. Domestic air passengers in the country projected to triple to around 175 million per annum by 2021 from 58 million in 2012.
An industry executive said, “Air traffic is expected to grow multi-fold. India is set to emerge as the third largest aviation market in the world by 2020. The opportunity is huge if fundamentals are set right.”
In fact, India is currently one of the most under-penetrated aviation markets in the world. According to data shared by AirAsia Group while releasing financials in December 2012, India has a fleet of around 422 aircraft for a population of 1.2 billion. In comparison, China has a fleet of 1,981 aircraft for 1.3 billion. A CAPA study in 2012 indicated the number of domestic airline seats per capita was very low in India: just 0.07 compared with 3.35 for Australia, 2.49 for the US, 1.38 for Canada and 1.05 for Japan.
The civil aviation ministry, under the new secretary R N Choubey, has rewritten the Civil Aviation Policy that is scheduled to be put for discussions by the end of this month. Choubey has said that the government is looking at various ways in the new policy to reduce cost of operations for airlines, including ways to order for aircraft in bulk for all Indian carriers together.