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Air India Reduces Fuel Surcharges

by Lorys Charalambous,, Cyprus

03 December 2008

The price of domestic flights in India is set to drop following Air India's announcement that they have cut their fuel surcharges by INR400 (USD8).

The cut, which became effective from midnight on December 2, 2008, will reduce fares for all domestic flights in the country by around 14.5%.

Previously, Air India imposed a INR2,350 (USD55) levy on trips up to 750km, and INR3,100 (USD62) on those exceeding it.

According to the company, the cut-back in the fuel surcharge is a consequence of the reduction in Aviation Turbine Fuel (ATF) prices from September 2008 onwards, including the reduction announced by state-run oil companies for December 2008, which has seen ATF (which is approximately 35% of an airline's overall operating costs) reduced by INR2,480 (USD49) per kilolitre.

Amendments to the country's ATF tax rates are currently top of the government's agenda, and only last month it made the announcement that it's planning to turn ATF into a declared good as part of the revision to the Central Sales Tax Act. If it goes ahead, this would lower ATF rates even further to a 4% flat rate across the entire country.

Domestic air travel demand within the country has been sluggish in recent months, and it is hoped that the reduction in the fuel surcharge will stimulate the domestic air travel market during the peak winter season.

Earlier this year the company announced that it was expecting to make heavy losses for 2008. However, the airline still intends to raise about USD1bn to increase its fleet of aircraft with the purchase of 21 new Airbus aircraft over the next 2 years.

Commenting on the company's decision, Chairman and Managing Director for Air India, Raghu Menonsaid stated:

"We have decided to bring down the fuel surcharge, now that crude prices have fallen globally, thereby bringing down ATF prices. Although crude prices are still volatile, we hope it will stabilize at the current levels, so that there is a short- to medium-term relief in ATF costs. This decision takes into account the reduced prices of ATF announced for the current month by the oil companies. While the airlines are no doubt going through difficult times, it is necessary for us to react positively to pass on some concession to passengers and generate demand."

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