June 25, 2008

Flying Low-Cost Has Just Become History

By Manju V

NEW DELHI/MUMBAI: It has taken about a decade for air travel to come a full circle in India. A Delhi-Mumbai ticket sold in the range of Rs 7,000 about a decade back. That figure looks like it has crawled back into the Indian economy-class flier's calculations. And, with the principal factor behind this retro trend - the rising price of aviation turbine fuel (ATF) - looking like it is here to stay, it may not be long before Indian airports stop sporting that come-all, fly-all very democratic look. The effect may be felt in the next couple of months with a fall of around 15 per cent in passenger traffic. Fares have gone up by almost 50% in the last four months, Travel Agents Association of India (TAAI) secretary Anoop Kanuga said. According to experts, it's the short distance sectors like Delhi-Lucknow, Delhi-Amritsar and Delhi-Jaipur that are likely to suffer the most.

The aviation industry has watched with dismay the northward march of ATF prices over the last few months. A litre of ATF cost Rs 21 in 2004. It now hovers around the Rs 70 mark (Rs 69.27 for a litre in Delhi and Rs 71.75 in Mumbai). There is some respite only in Hyderabad, where sales tax was slashed to 4% in March and ATF now sells at approximately Rs 57 a litre. All this spells bad news for the aviation industry. Delhi businessman Nitin Agarwal said: "A Delhi-Mumbai air ticket cost about Rs 7,500 in the 1990s and only the top brass of our company flew regularly. But, in the last five years, even the middle management has turned frequent flier. But the recent hikes have got us reexamining our travel policy."

But this is a global phenomenon; the hike in ATF cost has changed air travel dynamics in every economy as fuel price is the sole factor that controls air travel affordability. Bhutan's national airline, Druk Air, has cut its frequency on many routes, including those to Delhi and Kolkata, and even thriving destinations like Las Vegas in the US have started feeling the heat. Air travel has again become a luxury for the average Indian. Those days of last-minute packing and rushing to the airport to buy a Rs 3000 ticket are over, the director of an international airline said.

The airline lobby in each country has its own way of dealing with skyrocketing ATF prices. Basic fares are being hiked in India and, in the US, airlines have started charging the economy passenger for checked-in bag. But what distinguishes India from the rest of the world is the crippling sales tax state governments levy on ATF. The 30% sales tax that some states charge will only stifle the already gasping aviation industry, the airline director added.

Rising fares may hurt the Indian tourism industry this winter. People will look at foreign destinations, Kanuga said. There may be movement to South-East Asian countries and away from domestic destinations like Kerala. Fares continue to be competitive on those routes despite ATF prices. Singapore Airlines has announced a Rs 6,800-plus-taxes ticket for a return trip from Mumbai. The Jet Airways ticket, too, works out to about the same amount. Contrast that with An Air Deccan return flight to Simla from Delhi that costs Rs 14,000. "For just a little more, if people can get to travel abroad, why would they want to spend money for domestic sectors," said Prabhu Bajpayee, a travel agent.

(With inputs from Neha Lalchandani in Delhi)

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