Thailand’s low-cost airlines are increasing fares on domestic routes in a respond to a massive increase in excise tax on jet fuel that came into effect last week. The government increased the fuel tax on all domestic flights from 20 satang to THB4 per litre, claiming it was overdue, while bringing the tax more inline with the THB6 a litre tax on diesel fuel.
Nok Air, Thai Lion Air and Thai AirAsia issued statements, Tuesday, saying they would raise fares on domestic routes to reflect the “real cost increase by THB150 per sector”. It will increase roundtrip fares by THB300.
This additional cost will be included in all fares posted on Nok Air’s website as of 6 February 2017 onwards, the statement read.
Thai AirAsia and Thai Lion Air announced the same increase, effective 1 February (Air Asia) and 6 February (Lion Air).
Bangkok Airways announced later in the day that it would increase fares by THB200 per sector, effective 8 February.
Excise Department director general, Somchai Poolsavasdi, said the increase should generate more than THB4 billion from domestic jet fuel consumption, which is expected to reach 1.2 billion litres a year.
Excise tax on lubricants has also been raised, to THB5 a litre from zero previously, he said.
He noted that land transport companies pay THB6 in excise tax on a litre of diesel fuel, while airlines have enjoyed a 20 satang tax (100 satang = THB1) for years. The tax is not applied to international flights originating or transiting in Thailand.
The department hiked the fuel tax to create fairer competition in business, he said. It was a reference to rail and bus transport that has suffered a mass migration to airline travel.
Inter-city bus fares will be slightly more competitive when compared with airline fares after the THB150 is added to air fares. By 2016, jet fuel costs had declined by 36% since 2014 and this allowed low-cost airlines to quote fares that were almost identical to long-distance bus fares (air-conditioned buses).
While offering a token helping-hand to bus operators, the government’s other hand will snatch THB4 billion in taxes ultimately from travel consumers. It is unlikely to persuade travellers to return to long-distance bus transport noted as the second most dangerous form of transport after the infamous Toyota commuter van.
Thai aviation has been rising rapidly in recent years powered by low-cost airlines at the expense of land transport. Jet fuel consumption, will exceeds 1 billion litres this year, the director general reported.
Association of Domestic Travel advisor, Yutthachai Soonthronrattanavate, told Voice TV media that the tax increase would impact badly on domestic tourism.
“As airlines increase fares to compensate, the burden falls squarely on the consumer’s’ shoulders,” he said.
“The tax measure will hurt airlines operating domestic flights flying about one hour and using 8,000 to 9,000 litres per trip …it will increase an airline’s costs…in turn passengers will then have to spend more on flights.”
In the past when fuel prices were high, airlines immediately passed part of the cost to consumers in the form of a “fuel surcharge.” They eventually were forced to include the surcharge as part of the base fare rather than lumping it with service fees and taxes at the close of the transaction.
Thailand’s Ministry of Tourism and Sports is counting on domestic tourism to boost earnings and share the benefits of tourism beyond the main gateways. Low-cost airlines are the main driver allowing urban Thais to explore their country safely and at competitive prices.
Government officials will argue there are alternatives such as rail and road transport, but the standard and safety of those alternatives lags far behind air travel.
It would take a massive investment to upgrade rail transport to offer fast inter-city rail travel that could be considered a credible alternative to low-cost airline travel. It’s decades away which means for most travellers low-cost airlines continue to be the only choice to get around the country quickly and safely.
In the TV interview, Yutthachai said the excise department should have staggered increases step by step to give airlines a chance to adjust while cushioning the impact on consumers.
