Saturday, December 1, 2007

Where is all the money going? - Airport/Flight Tax

The aviation industry in India has taken off only in the last 3-odd years. I found myself trying to figure out how much money we were paying as tax and found myself arriving at the following amount through approximations and estimations.

I have come across many peers who, when asked to try and guesstimate any such quantity, give up and not even try. Hence, I have intentionally stopped myself from finding out exact facts for this exercise, and hope to prove through logic and a willingness to do mental math, that you don't really need to have all the facts to make an estimation.

I start at trying to figure out how many airlines are operating in India. I remember coming across some discussion or list somewhere which had surprised me that aviation in India actually had more players than the already skyrocketing telecom industry. If you were to attempt a listing of players of either industry, you should get at least 7-8 names. And then there will always be those names you can't recollect or haven't heard of. Let's start at a conservative count of 12 players in aviation.

Now, assuming these players are serious about aviation (why else would they participate in the industry, unless of course some of them were whims of 21st century Naseeruddin Shah wannabes trying to spend Rs.30 crores in 30 days a la Malamal - not that Rs.30 crores would get them too far in aviation today). Anyway, its safe to assume that any player 'serious' about aviation would start by looking at at least a dozen airplanes. If the minimum is a dozen, then for the entire industry, it should be safe to assume an average of 20 airplanes.

Each plane can probably make 4 trips in a day, with a trip averaging 2 hours of flying time, plus 2 hours of turnaround time per trip, which makes it 16 hours - let's leave the remaining 8 hours as grounded rest time for the aircraft, where routine maintenance and checkups can happen as much as needed.

Now, an average plane flying in India today has n number of rows, and since I'm not sure exactly how many rows, I will stop at a conservative 30 rows. With 6 seats in each row. And of course, don't forget the business class. However, for the sake of mathematical ease (read ignorace of how expensive business class tickets are), let's choose to ignore the revenue (read taxes) that business class generates. From what I have subconsciously understood over the course of my life, I'm going to assume that a dozen business class tickets should cost as much as 30 economy tickets, which is 16.66% of capacity (30 / 180). Hence, while we are ignoring business class, let's compensate by assuming a 100% revenue from capacity on economy (the average capacity utilization for economy being 80-odd % + a contribution of 16.66% of economy fares coming from business class). Hence, we're assuming 100% capacity utilization of economy class on each of the four daily flights per airplane.

After 8 hours of unwind time, even if you were to take an additional 3 days downtime per plane per month, and you get 365 minus 36 = 329 flying days.

Now for the final leg of this mathematical journey -
No of passengers flying with Indian aviation players per year =
12 players * 20 aircraft * 329 flying days * 4 flights per day * 180 passengers per flight = 56851200 = 56.8512 mn = 5.68512 crores
5.68512 crores * Rs.700 tax per flight taken = Rs.3979.584 crores ~ Rs.4000 crores per year

A few months ago, this Rs.700 tax was increased to Rs.1500+, which starts amounting to just over Rs.8500 crores per annum.

So I'm back to my question...

Where is all the money going?

P.S. Readers are invited to speculate with their own set of calculations, or provide actual tax revenue generated if they are aware of the same.

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