Commentry on Rising Fuel Prices

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Steep fares lead to drop in small-town flyers

2 Jul 2008, Saurabh Sinha

NEW DELHI: Air travel is fast getting out of reach for relatively small town Indians.

According to Airport Authority of India's (AAI) latest figures, April 2008 saw lesser number of people
 from places like Goa, Patna, Thiruvananthapuram, Guwahati, Calicut, Srinagar and even tourist hotspots like Udaipur, Jammu and Jodhpur over same period last year.

On a national basis, the growth rate of domestic passengers this year has fallen to single digit, down from the heady 30% to 40% figures recorded in past three years.

While this growth was largely due to airlines offering attractive fares, the drop in passenger flow was as high as 35% in Jodhpur or 24.5% in Jammu. These figures have the alarm bells ringing as the steep hike in jet fuel prices — which have led to sharp increase in
 — started only in April and the fall in flyers could get much worse for later months.

Till April, fuel surcharge on each ticket was Rs 1,650. Now the same surcharge is between Rs 2,250 and Rs 2,900 and base fares are also much higher, making flying a fancy for many.

"We are slowly reaching a situation where only flights between metros or ones originating or ending there may remain viable for airlines at these operating cost levels. State governments must come forward and offer low sales tax on jet fuel to airlines in return for an assurance that the latter would neither cut flights, nor hike fares to those places," said a senior AAI official.

In fact, the huge 30% to 40% growth recorded in past four years (after the advent of budget carriers) was substantially due to airlines rushing in with flights to places where bus and rail users could be shifted to air by the lure of low fares. But now with airfares on the rise, this connectivity is under severe threat. Airlines have already started pulling out of unprofitable centres.

SpiceJet executive chairman Siddhanta Sharma gave the airlines' perspective.

"Basically flights from most small cities are short haul. On such sectors, high airfares now compete with other cheaper fares of other modes of transport and
 becomes unviable. Only a reduction sales tax on jet fuel may help keeping such places connected as we would be able to offer competitive fares," he said. But as state government still dilly dally on this issue, their connectivity is suffering. Cities like Lucknow, Varanasi, Trichy, Patna and Rajkot witnessed much lesser domestic flights in April 2008 than last April.

While fares of international flights haven't risen as sharply, international passengers have also declined.

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Times of India

Introduction:

The Indian Aviation sector has grown by leaps and bounds over the last financial year but this seemingly booming sector is now slowing down. The above article talks about the decline in the number of air travellers from cities other than the metropolitans. The growth in the number of passengers came about because of one major reason, the introduction of low budget airlines which fly at a much lower cost. Even this effect is being negated by the rising cost of civil aviation. I will use the concepts of Choice, Necessity and Price Elasticity of Demand.

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