Jewar Airport’s Competitive Edge Threatens Delhi’s IGI
The upcoming Jewar Airport in Greater Noida is poised to challenge the dominance of Delhi’s Indira Gandhi International Airport (IGIA) by offering significantly lower fuel costs. Civil Aviation Minister Rammohan Naidu Kinjarapu has urged the Delhi government to reduce the Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) from 25% to a range of 1-4%. This move aims to prevent potential flight diversions to the new airport, which is set to begin commercial operations later this year.
Concerns Over Flight Diversions
In a letter dated March 19, Minister Kinjarapu expressed concerns that the high VAT on ATF in Delhi could drive airlines to opt for the Jewar Airport instead. The minister highlighted that Uttar Pradesh’s VAT rate of just 1% makes it a more attractive option for airlines, potentially impacting IGIA’s passenger traffic and revenue. With fuel costs accounting for 40-45% of operational expenses for airlines, the financial implications of VAT on ATF are significant.
The Jewar Airport, strategically located southeast of Delhi, is expected to cater to passengers from the eastern suburbs of the capital and surrounding areas. As commercial operations approach, the competitive pricing of fuel at Jewar could lure airlines away from IGIA, which currently serves over 73 million passengers annually, including 19 million international travelers.
The Need for VAT Reduction
The aviation industry has long advocated for a reduction in VAT on ATF to enhance competitiveness. Industry executives argue that high fuel costs severely impact airline operations and pricing structures. A reduction in VAT would not only lower operational expenses but also enable airlines to offer more competitive fares, thereby expanding their networks.
The disparity in VAT rates across India varies widely, with some states imposing rates as low as 0% and others as high as 29%. The current VAT in Delhi is among the highest, prompting calls for reform to maintain the airport’s competitive edge. The minister’s letter emphasized the urgent need for the Delhi government to act, stating that failure to do so could lead to a decline in air travel and economic activity in the region.
Economic Implications for Delhi
The potential shift of airlines to Jewar Airport poses a significant threat to Delhi’s economy. Assocham has raised alarms about the possible loss of jobs and economic activities if airlines find more cost-effective alternatives. The organization advocates for a VAT reduction to safeguard Delhi’s position as a major aviation hub. With rising ATF prices due to geopolitical tensions in the Middle East, the urgency for a VAT reduction has intensified. Current data indicates that ATF prices in Delhi are substantially higher than in other regions, further exacerbating the competitive disadvantage for IGIA. The aviation sector is now closely monitoring the Delhi government’s response to these pressing concerns, as the outcome could reshape the future of air travel in the region.
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