Airfares set to fall as Govt decides to cut tax on ATF

TAKING THE LEAD: Kingfisher Airlines Chairman Vijay Mallya says he is ready to reduce airfares.

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New Delhi: Union Finance Minister P Chidambaram has said the Union Government will lower the cost of aviation turbine fuel (ATF) and with it the chances of airfares coming down have risen.

To bring down the cost of ATF, Chidambaram wants to notify it as a declared good and when it happens, ATF will attract a uniform four per cent sales tax.

At present states sales taxes are as high as 30 per cent, making ATF over 60 per cent more expensive than international prices. The bill to bring down the taxes could be introduced in the Winter Session of Parliament.

"We will introduce the bill to declare ATF as a declared goods provided we are assured that there is broad support in Parliament," Chidambaram has said.

The move will help airlines who are expected to lose over Rs 3000 crore this year.

An excited Kingfisher Airlines Chairman Vijay Mallya was the first with a reaction.

In a statement following the finance ministers statement he said," If ATF is brought under declared goods, we will reduce fares, see that there are no job losses and increase rural connectivity."

Other airlines are expected to follow as well.

Should the sector get such a huge benefit, all airlines will cut fares. Analysts say the move will provide a boost to the sector and could even see the attractive fares which was lost long time ago coming back.

Low cost carriers will benefit the most.

With oil prices soaring to over $140 a barrel, fuel accounted for over 50 per cent of the operating cost. But now with prices coming down fuel is now just about 40 per cent of their cost this could come down further and then they will one again be able to truly low cost.