Aviation ministry readies sops for crisis-hit airline industry

NEW DELHI: The demise of Kingfisher along with the virtual collapse of SpiceJet may prove to be a boon for other Indian carriers as the aviation ministry looks at a series of sops — ranging from a tax holiday to cheaper loans — that read like an industry wish-list.
In addition, it is looking at the possibility of putting in place fare regulations — with a floor and a ceiling — in what looks like a throwback to the licence raaj.
Senior aviation ministry officials said they are drafting a note for Prime Minister Narendra Modi, which, among other things, advocates that airline payables to Airport Authority of India, oil companies and banks be “rescheduled to provide a longer payment/repayment period “. Needless to say the argument is not just about the stress on the airline industry but loss of “tens of thousands of jobs both directly and indirectly” and the impact on consumers — through an increase in air fares.
Officials said the move will benefit not only SpiceJet but all Indian carriers. While the proposals may be the aviation ministry or the industry's wish list, getting them through is not going to be easy as it involves significant revenue outgo and opens the doors for similar demands from other industries.
As a result, the ministry is backing the demand for “complete income tax exemption for a fixed period” for airlines such as the much-criticized move for special economic zones and software companies. “The government of India should direct banks to have a maximum interest cap of 8% in cases of loans given to airlines,” a draft document said.
Since the crisis at SpiceJet is being blamed mainly on the below-cost fares being charged by the airline from start of this year through unending flash sales, the aviation ministry’s draft note talks about setting up of minimum prices by regulating fares. “Airline companies are becoming bankrupt due to operating flights at a loss. If the situation is not contained, most of the airlines in the country are likely to close down in near future. Therefore, steps may be taken to fix minimum air fare to be charged by each airline,” it says. The draft proposes adding 5% margin to break-even price per km as the minimum price per km to be charged by airlines.
“This step will ensure that no airline will in future will go into losses. Further, to ensure reliability of the break-even prices, an external audit (agency) similar to Audit Bureau of Circulation in case of newspapers, can be held for airlines,” it says.
The note also talks of setting maximum fares too due to constant complaints of very high spot fares. “In order to address grievances of passengers on this count, there is a need to cap maximum airfares at a reasonable price of about Rs 15,000, beyond which airlines should not be allowed to charge and exploit passengers’ urgency for travel due to various reasons,” the note says. However, airfares in India are unregulated and it remains to be seen if airlines accept government interference unless the charm of minimum fares proves too irresistible.