Saying that there has been no demand from the private airlines to increase fares, the hike by Indian Airlines will be a "bonus" to the private airlines who will "manipulate the increase to such a level which will result in further diversion of traffic from Indian Airlines."

Warning that the Indian corporate sector is presently going through a major recession and many companies have reduced their travel in order to save costs, he said any fare hike would further reduce air travel and the airline will not be able to fill in its seats.

"The airline has, in the past, not followed theaccepted scientific principles of fare determination. Even the common principle of telescopic fare has not been followed in the past and in the recent proposal. Any proposal to hike the fares should be linked to distance and traffic. Therefore, sensitivity analysis of each sector is required," the ministry said.

Saying that the focus of the airline should be on cost reduction like outsourcing of various services, the ministry said there was no justification for a fare hike which will hurt the travelling people. Besides, the communication said the productivity-linked allowance of the airline should be discontinued and a profitability linked allowance should be introduced.

"Fifty per cent of the airline's profits are from the dollar earning sectors. While the loses from the fluctuation of rupee vis-a-vis dollar has been highlighted, the gains from the foreign exchange earnings have not been shown in the fare hike proposal," the ministry said.

In fact, the communication said, Indian Airlines is makingexcess recovery through hikes in fares than the estimated additional costs. Despite the constant fare hike, in the first six months of the current fiscal, Indian Airlines has slipped into red with a Rs 34 crore loss. With the seasonal tourist traffic not showing any signs of a recovery in November, the airline would be finishing the yera with an estimated loss of over Rs 80 crore, say aviation analysts.

The airline is now planning to raise funds by issuing fresh equity with a face value of Rs 240 crore in three phases. Of this, shares worth Rs 50 crore at par (Rs 10) would be offered to employees as stock option while the rest would be offered to institutional investors.