India's Aviation Minister Patel Asks Carriers to Reduce Fares

By Pratik Parija

Nov. 22 (Bloomberg) -- India's airlines should cut fares as oil prices have dropped and the government has helped the industry by scrapping a levy on aviation fuel, Aviation Minister Praful Patel said in New Delhi.

Indian Oil Corp., the nation's largest refiner, cut jet fuel prices on Nov. 15 for the fifth time in less than three months amid a decline in crude oil. The government abolished a 5 percent tax on aviation fuel on Oct. 31.

``The government is trying to help airlines tide over difficult times,'' Patel said at the Hindustan Times Leadership Summit in New Delhi today. ``With fuel prices dropping, you must match it with the perception that fares are coming down, otherwise public sympathy, government sympathy'' will wane.

Jet Airways (India) Ltd., the nation's biggest domestic carrier, posted its biggest quarterly loss in more than three years on Oct. 25 after spending on fuel more than doubled. Carriers in India may incur a combined loss of $2 billion this year on rising costs and slowing demand for air travel, the Centre for Asia Pacific Aviation forecasts.

Naresh Goyal, chairman of Jet Airways, said he was open to doing what the government wanted as long the company was profitable. ``I certainly would not like to close the company,'' Goyal said at the same meeting.

Jet Airways and Kingfisher Airlines Ltd., the Indian carrier owned by the nation's largest brewer, announced an alliance on Oct. 15 aimed at saving as much as 15 billion rupees ($300 million) by sharing resources and cutting duplicate routes.

Support for Alliance

Patel backed the alliance today, citing similar agreements overseas. The government would take a different view if such an agreement ``amounts to monopoly, cartelization and doesn't serve the purpose,'' the minister said.

Goyal said last month's announcement of 1,900 layoffs at Jet Airways and the subsequent retraction of the decision was mishandled by the company. The original decision had been made after expansion plans were curbed.

The airline still has excess workers and company is seeking to tackle this by reducing overtime and other methods, he said. Jet was forced to cancel its decision on Oct. 17 after protests by the employees and government criticism.

Patel said wrong taxation policies have curbed aviation and that India will seek to bring about parity in levies on fuel.

Kingfisher Chairman Vijay Mallya reiterated the demand that state sales tax of as much as 30 percent needed to be brought down, speaking at the same meeting today.

Patel, who ruled out any bailout package for airlines, also said that the government would infuse 12 billion rupees into Air India, the state-owned carrier.

Goyal said that the airline industry is sick and may come under more pressure in the next one to two years, although he also referred to the current situation as a temporary setback.

The aviation minister said infrastructure was a key constraint for airlines and that he expects six hubs to develop in the future in New Delhi, Mumbai, Bangalore, Hyderabad, Kolkata and Chennai, allowing Indian carriers to start competing with their overseas rivals. More than one hub was needed for carrying international traffic through India, he said.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.