To encourage travel to smaller cities Delhi lowers tax on aviation fuel

Tax reduction is only for airlines operating under the federal govt's regional connectivity scheme

The Delhi government has reduced the tax on aviation fuel to 1 per cent from 25 per cent for flights operating to smaller towns and cities, Deputy Chief Minister Manish Sisodia said, in a move to reduce costs for airlines flying to remote areas from the Indian capital.

The tax reduction is only for airlines operating under the federal government's regional connectivity scheme, introduced last year to make flying more affordable, Sisodia said on Wednesday while presenting Delhi's annual Budget.

India is the world's fastest-growing aviation market but most of the air travel is between big cities. Under the regional connectivity scheme, the government will subsidise part of the cost for airlines to operate flights to smaller towns.

Jet fuel is one of the biggest costs for airlines, especially for low-cost carriers such as IndiGo Airlines, owned by InterGlobe Aviation, SpiceJet and GoAir.

Aditya Ghosh, president of IndiGo, India's largest carrier, requested that the tax break be extended to all air travel out of Delhi, which is the airline's biggest base.

Airline stocks surged after the news. InterGlobe shares rose as much as 4.37 per cent, SpiceJet was up as much as 8.6 per cent and Jet Airways gained as much as 6.6 per cent.