Lower taxes can unlock massive air travel demand, says IndiGo’s Rahul Bhatia

IndiGo Managing Director Rahul Bhatia urged the government to cut taxes and rationalise airport charges, arguing that lower airfares would unlock “massive” demand in one of the world’s fastest-growing aviation markets and accusing policymakers of taxing flying as if it were “an elitist mode of transport”.

“On the one side, we say that flying by air has become a public utility, yet we treat taxes on it as if it’s an elitist mode of transport,” Bhatia told PTI in an interview.

“I think some of these things have to get rationalised. Because the Indian consumer is so price sensitive that if you can lower fares, you just open up a massive demand.”

Bhatia said airlines had largely absorbed cost pressures instead of passing them on to passengers.

“So, in a time span of three years where inflation has risen by 12 per cent, airfares, which represent the fares that the airline collects for themselves, have gone up between 1 per cent and 3 per cent. UDF (User Development Fee) charges at airports have gone up as much as 95 per cent.

“Landing and parking charges have gone up as much as 34 per cent... airlines actually do their utmost to make sure that fares are competitive,” he noted.

He said IndiGo, which controls 66.3 per cent of India’s domestic market, had a responsibility to lead fare increases when surging costs made them unavoidable.

“I think the responsibility lies on IndiGo to lead the charge...if the fuel goes up 30 per cent and nobody raises fares, it’s an excruciating pain for the industry,” he said.

“And... if they don’t, we’ll go back and bring our fares down.” Aviation turbine fuel accounts for around 40 per cent of airlines’ operating costs, while carriers have also been hit by higher oil prices and longer flying times because of airspace restrictions linked to the West Asia conflict.”

IndiGo’s best defence against fuel price volatility was operating increasingly fuel-efficient aircraft, Bhatia said, adding that to the best of his knowledge, no Indian airline currently hedges fuel prices.

Responding to concerns over IndiGo’s market dominance, Bhatia said about one-third of the airline’s capacity was deployed on around 250 unique city pairs where it had created new markets.

“If 34 per cent of your share is in unique markets, our share in markets that we compete in is only just in the early 40s, 42, 44 per cent...So, I think it’s a myth of sorts that we are too large,” he said.

Airfares are not regulated by the government.

Airlines’ operating costs are dynamic in nature, and their individual components vary due to multiple factors such as the price of Aviation Turbine Fuel (ATF) in international markets, foreign exchange rates, excise duties and Value Added Tax (VAT) and lease rentals.

In recent times, operating costs of airlines have sailed northwards due to a jump in oil prices and longer flying hours due to airspace curbs amid the West Asia conflict.

Aviation Turbine Fuel (ATF) or jet fuel alone accounts for around 40 per cent of an airline’s operating expenses. The jet fuel is taxed at different rates by different states.

“Just because we consume so much ATF does not mean we are experts at determining what the Brent prices will be tomorrow morning. But our natural hedge today, to the extent possible, is obviously increasingly flying more and more fuel-efficient aircraft. So, if you fly planes that are 50 per cent more fuel-efficient, you have a hedge there.

“Currently, in India, to the best of my understanding, no other airline hedges. And then, of course, the fuel goes up. Then the other thing airlines try to do is start to raise fares to see how much of it will get absorbed by the consumers,” Bhatia said.

India is one of the world’s fastest-growing civil aviation markets.

According to the IndiGo Managing Director, there is an ecosystem that needs to come together to ensure that India’s growth in aviation continues to prosper.

“It is airlines, it is airport operators, it is taxes on ATF. On the one side, we say that flying by air has become a public utility, yet we treat taxes on it as if it’s an elitist mode of transport.

“So, I think some of these things have to get rationalised. Because the Indian consumer is so price sensitive that if you can lower fares, you just open up a massive demand. And for that, I think there’s a collective responsibility on airlines, airports, certainly with the government on taxes, to make sure that we have an abundant offering that is attractive because the market is 1.4 billion people,” he said.

IndiGo is set to complete 20 years of flying next month.

Amid concerns in certain quarters about the dominance of IndiGo in the domestic aviation market with a share of 66.3 per cent in June, Bhatia highlighted that one-third or 34 per cent of the airline’s capacity goes into unique markets representing 250 city pairs.

“By the way, in these unique markets, there is no limitation... anybody (any airline) can fly in these markets... we want to open up a new market and then leverage our cost structure to see how we can create demand in that market.

“... we really think if you really want to integrate the nation, you need to try these things out. And in most cases we succeed, in some cases we fail, and if we fail, we pull away,” he said.

Explaining about IndiGo’s market share further, Bhatia said that “if 34 per cent of your share is in unique markets, our share in markets that we compete in is only just in the early 40, 42, 44 per cent. But nobody ever talks about that.

“And nobody ever talks about the fact that in the markets that we fly to internationally, we only own 20 per cent of the market. So, I think it’s a myth of sorts that we are too large,” Bhatia said.

IndiGo operates over 2,100 flights daily and currently has an operational fleet of over 400 aircraft.