Think of India as a transit hub

The aviation industry is going through turbulent times due to the global economic slowdown. Faced with high operating costs, low passenger traffic and mounting losses, airlines in India are struggling to keep their heads above water. While airlines have initiated several cost-cutting and cost-optimisation measures as capacity reduction and route rationalisation, they haven't yet fully recovered from the slump.

In terms of profitability, the airlines in India face an uphill task due to varied high charges they pay for operations. There is a price difference in aviation turbine fuel (ATF) in different states due to different duty structure and an unequal levy of sales tax. Landing and parking charges, too, are high in India and airport developers have increased these charges on account of the investments made in airport development.

Now that the country has got a stable government, it's important that the ministry of finance and the ministry of civil aviation support the aviation sector in its critical growth and profitability phase, with adequate fiscal incentives aimed to give a fillip to the sector. In addition to the continued emphasis on infrastructure development and allocating funds for modernisation of air traffic services, some of the priorities the government may consider are the rationalisation of sales tax on ATF; recommendations for the reduction of airport charges; and bringing clarity on customs and import duty for aircraft spare parts; auxiliary power units and major components on rotation and OEM power-by-the-hour contracts.

It's imperative that the government raises the tempo on airport infrastructure improvement. Its increasingly being noticed that tier-II and tier-III airports are taking the lead by attracting international carriers, especially low-cost airlines. In addition to this, the country is expected to have several new regional airlines and, therefore, improved infrastructure will have supportive benefits in building the aviation sector from all aspects.

There has been a slight recovery in passenger traffic with average airline loads falling between 75% and 85%, and the global fuel prices increasingly becoming less speculative, and a well-tailored fiscal support package could be just what the doctor ordered, in order to help the airline business recover faster and turn profitable.

India's is the fastest-growing aviation sector in the world and with sustained growth in the range of 20-25%, the country is becoming the world's emerging destination for air transport services. With India's airlines commencing international operations, traffic to and within India has also evolved. India is on its way to become a transit hub for the South Asia region and if given the right support, the country could soon surpass regional air traffic hubs such as Singapore and Malaysia in terms of passenger and cargo throughput. The government needs to act, and the time is now.

The writer is head of transport advisory services, KPMG