Article Posted on : - Dec 02, 2008

A file photo of Air India's Boeing 777-300ER (Extended Range) airplane. Photo Credit: Boeing

NEW DELHI (BNS): India's flagship carrier Air India has cut down air fares on all routes following a slash in the prices of aviation turbine fuel (ATF).

Announcing this on Monday, the airline said it would reduce fuel surcharge by Rs 400 for all routes.

The Indian government had asked all the airlines to cut fares after several measures were taken to bail out the aviation sector. The government wanted the benefits to be passed on to passengers who had stopped flying due to high ticket costs.

After Air India, other airlines are expected to follow suit as they would face stiff competition on fares from the national carrier.

At present, Air India levies a surcharge of Rs 2,350 for distances up to 750 km and Rs 3,100 for distances beyond that. In June, the airline had increased the surcharge by Rs 300 for sectors less than 750 km and Rs 550 for longer flights.

The reduction is basically to pre-hike level. It is expected to give the much needed relief to customers. The ATF price came down by 12 per cent in November, the lowest in last 14 months. In terms of money, Rs 5,580 per kilolitre were slashed from Rs 38,163.23 per kilolitre in New Delhi.

Besides reducing ATF prices, government has abolished five per cent customs duty on jet fuel. It is also planning to amend the Central Sales Tax Act in the upcoming session of Parliament to include the fuel on the list of “declared goods”. Such status means the fuel will have a uniform tax of 4 per cent in all states.

Civil aviation minister Praful Patel had asked domestic airlines to reduce fares in view of the eased ATF prices.

However, private airlines have not indicated if they would slash fares immediately, preferring to adopt a wait and watch policy. The private airlines have already incurred heavy losses due to high fuel prices. They are in no mood to bring the fares back to pre-hike months. Even Air India had reported a loss of Rs 2000 crore last year. A major reason for the slow-down was lack of passengers.

Air India has an ambitious plan to expand and it is banking on more passenger flow to fulfill its goals. It wants to acquire at least 21 Airbus aircraft by 2011. The government-run aviation company, National Aviation Corp of India, had placed orders for 111 aircraft in 2005. The deliveries were deferred due to slowdown in the industry. It has raised funds from international creditors to buy the new aircraft.