India cuts duty on aviation fuel, but fares may not fall
The reduced excise duty on aviation turbine fuel in India may not spur lower airfares as it will be neutralized by the recent hike in customs duty
The Indian government’s move to cut excise duty on aviation turbine fuel may not be enough to ease the woes of airline operators, who are battling rising crude oil prices and shrinking margins.
Fliers are unlikely to see reduced airfares because the basic customs duty was hiked on September 26 and it will be factored into aviation fuel prices in the coming weeks. The combined impact of higher customs duty and reduced excise duty might cancel each other out, Business Standard reported.
The government on Wednesday cut excise duty on jet fuel to 11% from 14% to help keep airfares in check and provide some relief for airlines troubled by high fuel prices. The new rate will come into effect from Thursday. Excise duty on jet fuel was increased in March 2014 from 8% to 14%.
SpiceJet chairman and managing director Ajay Singh wants the state governments and oil marketing companies to follow suit and reduce prices and taxes, as it happened with automobile fuels.
High jet fuel prices and a weaker rupee have kept airline finances under pressure, with companies reluctant to raise fares as the Indian domestic aviation market is very price sensitive.
Meanwhile, stock market investors have welcomed the cut in excise duty on aviation fuel. Shares of aviation companies such as SpiceJet, Jet Airways and InterGlobe Aviation (which owns IndiGo airlines), enjoyed gains that defied overall market sentiment on Thursday.