India's leading airlines, Air India and IndiGo, are set to implement significant reductions in their domestic flight schedules starting June 1. The decision, which will span three months, comes in response to a sharp increase in Aviation Turbine Fuel (ATF) prices and a projected decline in passenger demand following the school holiday period.
Reports indicate that Air India, which operates approximately 3,800 flights weekly, plans to cut up to 15 percent of its domestic services. IndiGo, with around 1,950 daily flights, will reduce its operations by 5 to 7 percent. Together, these carriers command over 90 percent of India's domestic aviation market.
Soaring Fuel Costs Drive Cuts
Aviation Turbine Fuel (ATF) constitutes nearly 40 percent of an airline's operational costs. According to a senior Air India official, the cost of ATF for domestic flights has climbed from around ₹80,000 per kilolitre to over ₹1 lakh, with variations due to differing state VAT rates. The official emphasized that operating flights at current ATF prices is no longer financially viable.
While no routes will be entirely canceled, specific sectors are slated for reductions. Air India expects cuts on flights from Mumbai to Ahmedabad, Nagpur, Patna, and Bhopal. Similarly, flights from Delhi to Hyderabad, Bengaluru, and Kolkata will see fewer services. The southern region will also be affected by the cancellation of return flights on these routes.
Impact of International Reductions and Demand Drop
The domestic flight cuts are also partially influenced by Air India's recent reduction in international flight operations. Fewer international flights mean a decrease in passengers requiring connecting domestic flights to hubs like Delhi and Mumbai. The airline has already removed these flights from its website to prevent bookings for the June 1 to August end period.
For IndiGo, the planned reductions align with a typical post-academic vacation dip in demand, which usually results in lower occupancy rates. Even a 5-7 percent cut for an airline operating nearly 2,000 daily flights translates to a substantial number of cancellations.
Government Intervention on VAT
In a move to alleviate the financial burden on airlines, some state governments have reduced VAT on ATF. The Delhi government notably slashed VAT from 25 percent to 7 percent on May 17, a reduction valid for six months. Maharashtra also recently cut its VAT from 18 percent to 7 percent until November 14. These measures aim to provide some relief amidst rising aviation costs and concerns over airfare increases.