Import Duty Hike Unlikely To Increase Airfare, Here's Why

Domestic carriers are unlikely to face a significant hit from the government's decision this week to impose a tariff on jet fuel, as imports account for less than 5 per cent of domestic jet fuel consumption.

Government data reviewed by Reuters showed country's annual jet fuel consumption in the fiscal year ended March 31, 2018 was 7.6 million tonnes, while imports in that period were just 291,000 tonnes.

"Airlines import insignificant volumes," said Kapil Kaul, CEO and director for South Asia at aviation consultancy CAPA.

The Centre said on Wednesday it is raising import tariffs on 19 "non-essential items" including aviation turbine fuel, marking a further tilt toward protectionism as it tries to reduce its widening current account deficit and tackle a sharp slide in the rupee.

The government's move to impose a 5 per cent tariff on imported fuel dented shares of domestic airlines on Thursday, sparking fears of further pressure on airlines already reeling under the pain of rising costs and a weakening rupee.

Shares of full-service airline Jet Airways Ltd fell by 4.6 per cent on Thursday, while shares in low-cost carriers SpiceJet and IndiGo parent InterGlobe Aviation fell 1.8 and 1.2 per cent, respectively.

"Any increase on the ATF will put additional burden on airlines. Furthermore, the depreciating Indian rupee is an additional cost burden on the domestic carriers," IndiGo said in a statement.

A finance ministry source said taxing imported fuel is unlikely to increase prices and only two domestic airlines currently import some jet fuel.

Like petrol and diesel, aviation turbine fuel in the country costs much more than it does in most places overseas, due to a slew of state and federal taxes.

While airlines have been permitted to import jet fuel, they have not really done so as most of the refuelling infrastructure at airports is controlled by local refiners.

The civil aviation ministry has asked the finance ministry to include aviation turbine fuel in the nationwide goods and services tax, a move that would help reduce taxes on fuel and lower the burden on airlines.