Press Conference on Air India’s new operational plan, Aviation Turbine Fuel and Service Tax on air travel

Following is the text of the press statement of Shri Ajit Singh, Union Minister of Civil Aviation at the Press Conference held here today on Air India’s new operational plan, Aviation Turbine Fuel and Service Tax on air travel. Air India’s New Operational Plan:             “At the very outset, I would like to place on record my appreciation of the unstinted support and cooperation, we have received from all our employees, in particular executive pilots of Air India in maintaining the flight schedule and running Air India in this difficult time due to pilots’ strike. Though I am trying to convey my gratitude to all employees and executive pilots personally, I would like to take this opportunity through media and you all to convey my thanks to all of them for standing by the airline in the present crisis situation. I would also like to convey my thanks to Air India management for patiently and firmly dealing with the situation.             “After an initial disturbance due to misunderstanding arising out of the strike, our domestic operations have rebounded to the pre-strike situation.  Domestic passenger carriage is now 26,000 passengers daily as it was in the first week of May when the strike began.  Air India plans to sustain this and make efforts to improve it.             “Within a few days of the strike, Air India formulated a Restructured Schedule which entailed flights to all major destinations except Hong Kong, Osaka, Seoul and Toronto.  Flights have been operating to New York, Chicago, Frankfurt, Paris, London and Singapore, though with combination, varied frequency and change of equipment.  With intensive use of our resources, Air India was able to restore Mumbai-London flight from 26th May.              “The Restructured Schedule has been stabilised and is now operating smoothly.  International passenger carriage on the Restructured Schedule has gradually increased to about 11000 passengers daily.             “Air India now plans to use narrow-bodied aircraft optimally and connect Hong Kong with A-319 aircraft from the first week of July 2012.  This flight will extend its operations to Seoul and Osaka from 1st of August 2012 thus ensuring regular services to Hong Kong, Seoul and Osaka.             “Regarding availability of pilots to restore international operations of Air India including Delhi-Toronto and Mumbai-Newark, Air India presently have 90 trainee pilots out of which 60 pilots are already having their training and will be available for regular flying in another period of 4-5 months. Air India plans to start training of balance 30 pilots also immediately. Besides Air India has also decided to recruit/hire pilots from domestic/ international markets. With this the entire original Air India network of 27 stations shall be not only fully restored but expanded also.             “Air India plans to expand its network by undertaking a new flight between Delhi-Kuala Lumpur from 1st of August 2012.  This will also help to strengthen Air India’s hub at Delhi.             “Air India will begin to receive the first of its B-787 aircraft shortly.  For the initial period of 6-8 weeks, the aircraft will be used predominantly on domestic routes to enable faster training.  The first long haul flight to be operated by B-787 aircraft will be Mumbai-London in August 2012.  Australia operations will commence soon thereafter in August-September 2012.             “As envisaged in the turn-around plan, we have started bringing systemic reforms in Air India. The first in line is the implementation of Crew Management System (CRS) to ensure high levels of safety of operations, meet regulatory requirements, optimum crew utilisation, bringing objectivity in crew management and achieving crew satisfaction. You may be aware that presently crew management is done by a manual system. The first phase of CMS is already implemented and second phase would be completed by early July, 2012.             “We are also bringing a new and objective examination system for in-service pilots in place of the existing system in which there will also be a provision of appeal. Aviation Turbine Fuel (A.T.F.)             “Cost of ATF constitutes approximately 40% – 50% of the operational expenses of airlines in India.             “Average ATF price at major airports in India is significantly higher than prices in other hubs such as Singapore, Hong Kong, Dubai, London, Abu Dhabi             “India’s airlines are extremely sensitive to the price of ATF as it adversely affects the viability of air transport operations in the country.             “Expert agency commissioned by MoCA to study the ATF market attribute following reasons for high ATF prices: §         High taxation regime particularly ad valorem VAT levied by States (ranges from 20% to 30% for most states) §         Lack of effective competition in the ATF market in India- Oil Marketing PSUs maintain ownership of and control access to this infrastructure,             “Expert report has recommended a slew of reforms to promote competition and bring in transparency and these include: §         Bringing ATF under “Declared goods” category that attract uniform lower rate of VAT §         Switch  to specific rate of duty instead of ad valorem taxation of ATF §         Ministry of Petroleum and Natural Gas to bring ATF under Petroleum &Natural Gas Regulatory Board’s regulatory scope by notifying the product so that PNGRB could take action to protect user/consumer interest. §         All ATF related infrastructure outside airports viz: pipelines as well as connecting and intermediate storage infrastructure will have to be regulated by the PNGRB to enable open access to all ATF suppliers within the ATF market Service Tax on Air Travel             “India amongst few countries in the world that levy service tax on air tickets. Levying of this tax has hampered recovery of air traffic growth and profitability in Indian aviation industry.             “Service tax during the financial year 2012-13 on transport of passenger by air has been increased 4 times and now the service tax is levied upon 40% of gross ticket value (earlier it used to be service tax on 10% of gross ticket value or Rs.100 per journey whichever is lower for domestic passengers travelling by any class and 10% of gross ticket value or Rs.500 per journey whichever is lower).             “This changeover to ad-valorem rate of taxation without having any maximum cap is a retrograde step particularly at a time when we are advocating specific lower rate of duty for VAT on ATF by the States.             “The above increase in the service tax would make the air travel costlier. A 10% rise in the price reduces the demand for domestic air traffic travel by about 12% as per the price elasticity of demand calculations. This would definitely spell more trouble for the airline companies which are already reeling under tremendous stress due to existing unviable operating environment.             “I have requested Hon’ble Finance Minister to revert back to the earlier rate of service tax on domestic as well as international tickets”.