A booming premiumisation drive in the cabins of Indian carriers may hit an air pocket with the government hiking the tax rate on business class and premium economy seats.
With the tax rate on economy being unchanged at 5%, airline executives said that selling premium economy is going to get harder as those were being filled mostly by economy passengers looking for an upgrade.
"The hike in business class is not my headache. Those seats are mostly filled by corporate travellers who will get an input tax credit or the high net worth ones for whom a 6% change will not matter much. But premium economy is going to take a big hit as an economy passenger will now think twice before upgrading," an airline official said.
Data shared by Cirium, an aviation analytics company, shows that there has been an over 10 times increase in number of premium economy seats operated from Indian skies. While airlines were selling 7,066 premium economy seats from India in November 2019, the count has gone up to over 70,000 weekly seats in August.
This also works out profitably for the airline as by providing a little more legroom than standard economy, and perks such as a welcome drink and a better meal, they were able to charge higher.
A senior executive of an airline said the GST hike "adds 5-7% to the overall cost of a premium ticket, depending on sector and seasonality." He added that competing hubs in the Gulf and Southeast Asia operate under far leaner tax regimes and sustained increased risk eroding India's position as a global aviation hub.
Vistara was the first airline to offer premium economy in Indian skies. With it becoming popular with customers, Air India is also increasing premium economy seats by retrofitting the aircraft with an addition of 27 seats in each aircraft.
Similarly, many foreign airlines like Emirates, Air Canada have also been launching premium economy products in India.
To be sure, Indian carriers are amping up their front end. IndiGo entered the premium domestic segment with its "IndiGoStretch" business class, offering 12 seats per A321neo on select high-traffic routes a little over six months ago.
With the tax rate on economy being unchanged at 5%, airline executives said that selling premium economy is going to get harder as those were being filled mostly by economy passengers looking for an upgrade.
"The hike in business class is not my headache. Those seats are mostly filled by corporate travellers who will get an input tax credit or the high net worth ones for whom a 6% change will not matter much. But premium economy is going to take a big hit as an economy passenger will now think twice before upgrading," an airline official said.
Data shared by Cirium, an aviation analytics company, shows that there has been an over 10 times increase in number of premium economy seats operated from Indian skies. While airlines were selling 7,066 premium economy seats from India in November 2019, the count has gone up to over 70,000 weekly seats in August.
This also works out profitably for the airline as by providing a little more legroom than standard economy, and perks such as a welcome drink and a better meal, they were able to charge higher.
A senior executive of an airline said the GST hike "adds 5-7% to the overall cost of a premium ticket, depending on sector and seasonality." He added that competing hubs in the Gulf and Southeast Asia operate under far leaner tax regimes and sustained increased risk eroding India's position as a global aviation hub.
Vistara was the first airline to offer premium economy in Indian skies. With it becoming popular with customers, Air India is also increasing premium economy seats by retrofitting the aircraft with an addition of 27 seats in each aircraft.
Similarly, many foreign airlines like Emirates, Air Canada have also been launching premium economy products in India.
To be sure, Indian carriers are amping up their front end. IndiGo entered the premium domestic segment with its "IndiGoStretch" business class, offering 12 seats per A321neo on select high-traffic routes a little over six months ago.
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