Succumbing to government pressure, Vijay Mallya-promoted Kingfisher Airlines on Monday decided to cut fares, but with the condition that the government put aviation turbine fuel in the declared goods category. Kingfisher has also assured that it would not resort to retrenchments to deal with the downturn.
The move comes close on the heels of a Finance Ministry statement that it intends to introduce a bill in the forthcoming parliament session to put ATF in the declared goods category. This will bring sales tax on ATF to a uniform 4 per cent across the country. Currently, the tax varies between 4 per cent and 30 per cent from state to state. ATF prices have fallen by over 45 per cent in the last three months, giving respite to airlines as over 45 per cent of their operational costs are on fuel.
In a statement issued to the media, Mallya said, "This long-awaited initiative will stabilise the aviation industry and provide much needed financial stability to airlines. In response to the initiative from the government, Kingfisher will immediately reduce air fare across the board as soon as the declared goods classification is approved."
Mallya also assured that he would resume services in various sectors from where others were withdrawing.
This move comes close on the heels of Civil Aviation Minister Praful Patel directing Air India to cut fares. Patel, speaking at the HT Leadership Summit in New Delhi on Saturday, said, "Air India does not have to behave like the other two carriers (Jet and Kingfisher). It is a responsible, government carrier. If oil prices have come down, so should fares." He said fares would come down from December.
Air India has 18 per cent share of the domestic market, while Jet and Kingfisher together control 55 per cent.
The government recently bailed out airlines by giving them a slew of sops and extended their deadline to pay over Rs 2,000 crore in dues to oil companies.
Patel also made a scathing attack on the two airlines for resisting a cut in fares. "Whatever little benefit has been given by the government must reflect in lower and better fares. Otherwise, public and government sympathy for your cause will go."
Air India has already responded to Patel and is planning a fare cut of 10 to 12 per cent, according to sources. Even other private low-cost carriers such as SpiceJet have already decreased fares by 15 to 20 per cent, which includes (a cut in) the basic fare.
However, only Jet Airways' Chairman Naresh Goyal seems to be holding on. A company spokesperson said they had no such plans at the moment.
Responding to Patel's request, Goyal on Saturday had retorted back, "I don't want to close my company. We invite the minister to check our accounts and see if any money is being wasted. If the minister wants, we will decrease fares but my company has to be profitable."
Mallya recently forged a strategic alliance with Jet to rationalise operations.
