Air India may cut airfares by 12% in December

Initiating a move to set a bottom line for the skyrocketing airfares, National Aviation Company of India – the operator of public sector carrier Air India – is likely to cut airfares by 12% in mid December, sources said.

Taking note of the Civil Aviation Minister Praful Kumar Patel’s call to slash airfare, following a cut in aviation turbine fuel prices (ATF) and five percent cut in the basic custom duty on air fuels, the airline is working on a considerable reduction in fares. Patel was speaking at the HT Leadership Summit held in capital on Saturday.

Earlier, the airline companies were bearing the soaring price of ATF which at one point crossed Rs.70,000 per kiloliter in Delhi and Rs.80,000 per kiloliter in Kolkata. Along with higher sales tax of air fuels, it had a swelling impact on the airfares.

Now, as the ATF has slipped down to Rs.39,380.51 per kl and Rs.47,805.04 per kl in Delhi and Kolkata respectively, which is 45-50 percent less than July’s price, a cut in fare is expected in order to boost the air traffic growth rate. Last November the average price of ATF was Rs 39,767 per kl as against the average price of Rs 41,417 per kl this November.

The price of crude oil has also slipped down and currently hovering at $50 per barrel as against $170 per barrel recorded a few months ago.

However, the private airlines are unlikely to cut down the airfares as Naresh Goyal, the CEO of Jet Airlines and Vijay Mallya, the Chief of Kingfisher airlines, who were also present in the summit, are yet to come out with any kind of favourable announcement.

“We have a responsibility to our shareholders; we need to protect our bottom line. I certainly would not like to close down the company,” said Naresh Goyal, who shared the dais at the summit with the Aviation Minister Praful Patel and Vijay Mallya.

Mallya, on the other hand, has asked the government to categorise ATF as a 'declared goods' so that it can attract a uniform sales tax of four percent across the country, as some states still charge 35% surcharge on air fuels.

“A declared goods status will give us confidence to reduce fares without bothering about the volatility of the oil prices,” said Mallya.

Naresh Goyal, though, later proposed up to 25 percent pay cut for Jet’s higher paid employees, who are getting more than Rs.75,000 per month, but the final decision would be taken after holding several rounds of negotiations with the representatives of employees.

Besides, salary cutting, Jet has also decided not to renew the contractual agreements with expatriate pilots once these expired, the official added. There are as many as 240-odd expatriate pilots in the Jet flying staff who are on the contract and are receiving more than 50 per cent higher salary than their Indian counterparts.

The company has also announced to set up a panel of experts to explore the way of cost cutting. Earlier, Jet Airlines had sacked around 850 employees last month after shaking hand with Kingfisher airlines but, was forced to take them back into service amid huge protest and government intervention.

The Indian airlines are bearing heavy loss and the aviation ministry has reported a combine loss of Rs.4,000-crore in 2007-2008, while it is expected to touch Rs.9,000-crore by the end of this fiscal.