Sunday, 23 November 2008

Govt asks airlines to cut fares after fuel price fall

NEW DELHI (Reuters) - India's airlines should cut airfares after jet fuel prices eased, the union aviation minister said on Saturday.

Fares rose by almost half last year but should start coming down by the New Year, Praful Patel, whose ministry controls state-run carrier Air India, said at a conference.

Patel's call to cut prices follows a similar proposal by the union finance minister to real estate, airlines, hotels and auto firms earlier this week to help stimulate the economy.

Growth is slowing after an average expansion of 9 percent or more over the last three years

"Now with fuel prices on the downward ... you must match it with the perception that fares are coming down," Patel said.

The union government has asked state-run oil firms to revise jet fuel prices every 15 days and extend credit lines to airlines. The aviation ministry is also seeking to cut sales tax on jet fuel to 4 percent by the year-end.

Jet fuel, which accounts for about 45 percent of an India airlines cost, is among the most expensive in the world due to sales tax of up to 30 percent in some Indian states.

Record oil prices have pushed airlines to the brink, forcing them to raise fares to stay in business after the deepest global financial crisis in 80 years cut off other funding options.

But higher fares have also scared away passengers. Air traffic grew by only 2.3 percent between April and August compared to 38 percent a year earlier, government data showed.

Though oil prices have tumbled lately, airlines resisted cutting prices as total costs are still high and their combined loss in the year to March 2009 is expected to be close to $2 billion.

"I certainly would not like to close the company," said Naresh Goyal, the chairman of top domestic airline Jet Airway. "We would do anything the ministry wants us to do provided we are profitable."

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