NEW DELHI, India – As Indian carriers protest the proposed hike in service tax on air travel, global airlines body IATA has said such taxes would compromise the industry’s ability to maintain margins in the wake of rising fuel prices.
In the last few weeks, additional taxes have been proposed on air travel in India, South Africa and Iceland, while new and increased taxes of 3-5 per cent of ticket prices were imposed in the UK, Germany and Austria last year, the International Air Transport Association (IATA) has said.
“This is a price-sensitive business. Aviation has the power to stimulate economies. But that ability is being compromised by adding taxes at a time when we are struggling to cope with high fuel prices just to maintain anaemic margins,” IATA Director General Giovanni Bisignani said.
Maintaining that oil price hike due to the unrest in the Middle East posed a major risk to aviation business, he said, “This year we have seen proposals to increase taxes in South Africa, Iceland and India.”
“Adding taxes, which in some cases are 3-5 per cent of the cost of a ticket on top of the rise in oil prices, is also a big risk” especially in the leisure travel market, he said.
Opposing the imposition of 10 per cent service tax in business class on domestic flights and business and first classes on international flights, the Federation of Indian Airlines (FIA), representing all Indian carriers, yesterday told the government that this charge will cut into the “already thin margin of the airline business”.
The service tax and other cess, proposed in the budget, would raise the total ticket value by at least 10.3 per cent and, consequently, the price of a domestic business class ticket would cost Rs 3,000-3,500 more, the FIA said.
In its financial forecast, the IATA said the largest collective profit globally at USD 3.7 billion would be registered by airlines in the Asia-Pacific region.
But this is “down substantially from the USD 7.6 billion that they made last year”, Bisignani said, adding, the key reason was that the region was more exposed to higher fuel prices.
IATA’s 2011 industry outlook estimated a global profit of USD 8.6 billion, a 46 per cent fall in net profits compared to the USD 15.1 billion earned in 2010.
Following their Asia-Pacific counterparts, North American carriers are expected to deliver USD 3.2 billion profit this year, which is down from the USD 4.7 billion profit they made last year, the IATA’s financial study said.
European carriers were expected to make a USD 500 million profit only, which is much below USD 1.4 billion the region’s carriers made in 2010, while Middle Eastern airlines are likely to return a profit of USD 700 million, lower than USD 1.1 billion posted last year.