Aviation industry eyes govt adequate infrastructure upgrade, tax breaks in Budget for 2024-25

In the last 10 years, India has become the third-largest domestic aviation market in the world, after the US and China, with 4.2 lakh Indians flying domestically in 2024 every day, as against 1.85 lakh passengers in 2014, however, profitability in the sector remains questionable.

India is the world’s third-largest aviation market after the US and China, with 4.2 lakh Indians flying daily domestically in the financial year 2023-24. In 2014, the number was 1.85 lakh. While the sector continues to clock a healthy growth, profitability remains in question.

While govt measures have seen more Indians flying, making the country the third-largest aviation market in the world, infrastructure woes continue to haunt. Abolition of the negative fiscal regime and provision of adequate infrastructure are the industry's two main demands.

To reduce the burden of high fuel prices, the aviation industry in its budget recommendations has sought tax deduction and rationalisation to help make the sector more profitable, while seeking a priority sector lending tag for airports.

ALSO READ: Union Budget 2024 Live Updates

The Association of Private Airport Operators, which includes major players like Delhi International Airport Ltd and Mumbai International Airport, has requested the government to categorise airports under priority sector lending and clear ambiguities around collecting the user development fee, which is paid by passengers.

“Airport construction requires huge investment and long gestation period. A short period of loan availability, coupled with a high interest rate results in a huge financial cost and cash flow mismatch for airport operations," the association said in a letter to the government. The first Budget of Modi 3.0 will be presented on July 23.

ATF relief

Domestic airlines have once again requested the inclusion of jet fuel or aviation turbine fuel (ATF) under the goods and services tax, which would enable them to claim input tax credit, thereby reducing overall expenses.

Jet fuel accounts for nearly 40 percent of the total expense for domestic airlines. A reduction in ATF will also bring down ticket prices.

Aviation consultancy CAPA India has also been asking the government to come up with a new policy in the backdrop of the rapid changes the industry has seen after the COVID outbreak.

"The new policy should plan for airport capacity that will last for a generation and beyond, must define an international air services strategy in line with India's national interests as well as restructuring airspace design to provide capacity for up to 8-10x of the current traffic," the aviation consultancy said in June.

The government should also dismantle the negative fiscal regime and provide adequate infrastructure, CAPA India said.

The domestic aircraft maintenance, repair, and operations industry is hopeful that the government would consider the GST council's recommendation of a uniform tax on the import of aircraft components.

In June, the 53rd GST Council recommended a 5 percent tax on imported aircraft parts, components, testing equipment, tools and toolkits of aircraft, irrespective of their HSN code.

HSN, or Harmonised System of Nomenclature, is an internationally acceptable numerical code for classifying products for tax purposes.

Wasteland?

Three major airlines have collapsed in India since 2014. SpiceJet went bankrupt and had to find a new owner in 2017. Jet Airways collapsed in 2019 and no-frills carrier Go First, earlier GoAir, filed for voluntary insolvency in 2023.

Indian airlines continue to struggle to make profits and are expected to post losses between $400 and $600 million in FY25, CAPA India has said.

The industry reported a loss of $300- $400 million in FY24 despite a 6-8 percent rise in domestic traffic to 161-164 million and a 9-11 percent rise in international traffic to 75-78 million.

Airline costs are expected to rise 3.8 percent in the current financial year, the consultancy said without sharing the figure for the previous year.