Government is working on a new Civil Aviation policy and economic regulatory mechanism for pricing of air tickets as the industry has been passing through a turbulent phase despite growth in passenger traffic.

"We have started fresh work on the new Civil Aviation policy to meet the challenges of the new decade. It will look into issues of sustainability, viability and human resource of the sector," a senior Civil Aviation Ministry official said.

He also said that the Ministry was working on an economic regulatory mechanism for pricing of air tickets as the airlines have been attributing their losses to the pricing of air ticket below their cost price.

"It (pricing of air ticket) is the thrust area. We are also working on an economic mechanism that will look into the issues of legality and others and come up with a report within five months," the official said.

But we will not regulate the airfares or fix the tariff, he added.

Airline companies have been reporting losses despite an increase in passenger traffic. The domestic air passenger traffic recorded in April to September 2011 registered a growth of 18.8 per cent from the corresponding period last year.

Also, the ministry is planning to propose a set of recommendations to ease taxes on aviation turbine fuel to the Prime Minister's Office (PMO) after it wrote to the ministry to examine tax regime governing the jet fuel. .

The official said ATF prices and taxes on it would be reviewed in the economic regulatory framework, under which the ministry could propose direct import of jet fuel and ease the policy regime in this matter.

It will also suggest restructuring of custom and excise duty on jet fuel.

Jet fuel comprises nearly 40 per cent of the operating expenses for an airline. Prices in India are higher than many other countries in the world.

Currently, state governments levy 4 to 30 per cent taxes on ATF. Efforts to get states on board to rationalise taxes, have shown no positive results, with states fearing a loss of revenues.

During the first two quarters of the current fiscal, Jet Airways, Kingfisher and SpiceJet have lost nearly Rs 1,500 crores