International Air Transport Association (IATA) CEO Tony Tyler has voiced his concerns about skewed taxation of jet fuel prices and the steep hike in airport charges.
CNBC-TV18 spoke to Tyler who said that he was not convinced about the Indian government's efforts to allowing FDI in the sector and added that foreign airlines would think twice about investing in India due to concerns regarding policies.
"The Indian airline sector is in a state of financial crisis and needs to be helped by supportive government policies if it has to contribute towards the economic development of the country as a whole."
Delhi Airport operator DIAL issued a statement in response to Tyler's comments defending increased airport charges by pointing out that IATA had used flawed indices in its calculations that concluded Delhi as the most expensive airport.
DIAL said that the blame rests on 'unregulated' and 'opportunistic' airfares of adversely affecting air traffic.
Below is an edited transcript of the interview on CNBC-TV18.
Q: Speaking of policy measures, did you discuss with the government on foreign direct investment or at least foreign carriers being allowed to pick up a stake in Indian carriers?
A: We know the when government had announced that as a measure, it intended to implement it as indicated in the Budget announced in March by the finance minister, who has recently been elected as President.
But let us not think that is going to be the panacea that is going to solve the problems. No one wants to invest in an airline unless they can see a return on that investment and at the moment unless some policy changes are put in place, it is difficult to see how returns can be achieved on these investments.
Q: Are foreign carriers indicating that even if the regulations in India were to change and they were actually allowed to pickup a stake in domestic carriers, the red balance-sheets and poor policy environment may be significant deterrents?
A: That's exactly right. It is quite clear that even after having had have a good look and see investment opportunities, foreign airlines will be put off by the high levels of tax, the steep charges and restricted the fact that the supply markets for fuel. Foreign airlines are going to have second thoughts before they invest in Indian aviation.
Q: The government has said that increased airport charges are part of a larger plan as far as the Delhi Airport was concerned. This matter is also now in court. What is that airline companies are telling you about what this could actually do to cost as well as traffic from the Delhi Airport?
A: The charges at Delhi Airport have gone up by over 345%. So, its actually over 350%. This is too huge an increase to be hit with at one time. We estimated something like USD 400 million more cost to come from airlines and passengers to Delhi Airport.
When you put the price of something up, of course you soften the demand for it and that’s exactly what we are seeing. We are seeing domestic demand in June was down 3.8%. Our own forecast and models for the impact of these big increases in cost on traffic will show reduction of something like 5-7%.
This is clearly against the interest of everyone concerned. This is not in the interest of Delhi Airport and is not in the interest of the airline and most importantly, its not in the interest of the Indian economy.