Though levy of service tax on domestic air travel is negative, given the rebound in air travel, the players can fully pass on the impact to customers through hike in fares.
The budget proposes to increase the scope of air passenger transport service is being expanded to include domestic journeys and international journeys in any class from the earlier provision of taxing only international journey in any class other than economy class.
Industry Expectations – not fulfilled
The budget had not much to offer for the civil aviation sector. Their demand for cut in taxes on ATF, which accounts for about 40% of the cost of any airline company, remains still un-answered. The levy of service tax on domestic travel would be recovered by companies from the passengers.
The Transport Air sector is seeing some light at the end of the tunnel. Though there is still some rough weather to face, the performance is improving. The passenger numbers are atleast showing some positive move.
However, the bleeding would continue for a while. The more hit are the full service operators who are carrying high assets and steep competition. The expansion plans of the LCC are in place whereas the full service operators are trying to improve their seat utilizations.
Fuel cost accounts for 35-40% of the operating costs down from the 45-50% level manly due to dip in ATF prices. The airlines with efficient performance would stand out.