India’s largest airline IndiGo on July 26 said that some states increasing the value added tax (VAT) on jet fuel or aviation turbine fuel along with airports in the country hiking certain airport fees is creating an inflationary environment for the airline.
"Currently, we are experiencing a higher inflationary environment... it is across the board, we are experiencing. Nonetheless, we are looking at ways to control the costs," the company's management said during the airline's post-earnings conference call.
At the start of 2024, the state governments of Goa and Andhra Pradesh hiked the VAT on ATF prices. While Goa has hiked VAT on ATF from 8 percent to 15 percent per kilo-litre, Andhra Pradesh has increased the tax on ATF from 5 percent to 10 percent.
Similarly, around 13 major airports in India have increased the user development fees (UDF), a levy designed to bridge revenue shortfall and ensure fair returns for airports.
The fee, which varies from airport to airport, is collected by the airline, and passed on to the airport operator.
Airports at Bengaluru, Hyderabad, Mangalore, Thiruvananthapuram, Ahmedabad, Jaipur, Lucknow, Kannur, Kochi, Chennai, Kozhikode, Kolkata, Goa, Bhubaneswar, Patna, and Srinagar have raised UDF in a range of 2 percent to 200 percent in 2024-25, the Civil Aviation Ministry said in response to a question in Parliament earlier this week.
However, IndiGo's management said the upcoming Noida International airport is positioning itself to capture growth of the aviation market around Delhi-NCR with policies like lower VAT rates and other airport fees.
"Clearly Noida Airport is positioning itself, at least per the information we have today, to take a significant share of that growth from Delhi-NCR," the airline's management said.
The second airport coming up in Delhi-NCR's Jewar is expected to benefit from significantly lower VAT on aviation fuel.
The existing airport catering to Delhi-NCR, in Gurugram, Haryana, charges a value added tax of 25 percent on aviation turbine fuel, while the tax at the new airport will be about 1 percent.
Airlines spend 35-40 percent of their total expenditure on fuel.
IndiGo, in Q1FY25, posted a profit of Rs 2,736 crore, down 11.5 percent as compared to a net profit of Rs 3,090.6 crore in the same period a year ago, mainly due to a 22.7 percent rise in the airline' aircraft fuel expenses which rose to Rs 6,416.5 crore.
When compared year-on-year, ATF prices in April 2024 stood at Rs 100893.63 per kilo litre, 2.6 percent higher than Rs 98349.59 per kilo litre in April 2023. Similarly, jet fuel prices in June 2024 stood at Rs 94969.01 per kilo litre, which is 6.34 percent higher when compared to Rs 89303.09/kl in the same period in 2023.
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