Air India worried on the fallout on premium economy service
For past several months Air India has tried to push it’s premium economy sales, pricing the seats a tad higher than the economy cabins.
While that strategy has yielded mixed result, now there is fresh concern with the goods and services tax council hiking the rate on business and premium cabins from 12 to 18 per cent. The rate on economy class seats has been retained at 5 per cent.
While several foreign airlines have premium economy, business and first class seats, Air India is the only Indian carrier to offer the products. As such the impact of rate hike would be felt more by Air India than any other carrier.
“The GST rate hike will make the premium economy seats less attractive,” an Air India executive said.
He said that Indian market remains price sensitive and there are challenges in selling premium economy in non metro markets. Several corporates are still to adopt premium economy class for staff travel leading to slower pick up. Air India’s premium economy seats are priced ₹1000-1200 higher than economy class on domestic routes
While Vistara had three class cabins on domestic routes, Air India’s domestic product had only two classes – economy and business. Now that is changing with Air India adopting three class cabins for all its aircraft.
While 18 legacy Airbus A320 aircraft have been retrofitted work on nine planes is expected to be complete by September end. Work has also begun on retrofitting Boeing 787 aircraft to equip them with new seats. Air India did not respond to an email query on the topic.
Industry body International Air Transport Association (IATA) said the increase in GST rate on premium classes is disappointing.
“This increase runs counter to the efforts of Indian carriers, which have been investing in their premium products to enhance the travel experience on their flights. For its aviation industry to thrive, India needs to take a whole of government approach in considering broader policy and consider the risks of such policies on dampening demand and undermining profitability,” IATA regional vice president Sheldon Hee.
Remove GST on international flight tickets
While the GST council has rationalised rates, it is yet to consider aviation sector’s demand to exempt international air tickets from the tax. Inclusion on aviation turbine fuel under GST is another pending demand.
“International air travel should not attract GST. Other countries do not levy GST on international air travel. Exports of goods and services are zero rated under GST and same principle should apply to international tickets,” said a sector expert
Published on September 4, 2025
