Aviation fuel to cost less, but airlines against fare reduction

Domestic air travel will not become cheaper despite oil companies reducing the price of aviation turbine fuel (ATF) by as much as 16 per cent mainly on account of fall in international ATF prices. The only other time this year when ATF prices fell was in February.Indian Oil on Sunday announced that from September, domestic airlines picking up ATF in Delhi will be charged Rs 59.65 a litre, down from Rs 71.02 a litre charged in the previous month. Similarly, in Chennai, airlines will pay Rs 65.49, (Rs 77.66 a litre), while in Mumbai, airlines will be charged Rs 61.83 a litre instead of Rs 73.67.

ATF accounts for about 45-50 per cent of the operating costs of most domestic airlines. The increase in crude prices has seen the industry either increase fuel surcharge or basic fares. However, arguing against any immediate decrease in airfares, airline officials point out that while ATF costs have increased by about 90 per cent between October 2005 and July this year, fares of full-service airlines on the Delhi-Chennai sector have increased by just 27 per cent, while fares in the Delhi-Kolkata sector have risen by 1 per cent.

“For the time being, we do not want to change our pricing strategy. We want to see medium term development of ATF prices before taking a call. Even with this decrease, oil prices are significantly above the levels as compared to about six months ago,” the Chief Executive Officer, Jet Airways, Mr Wolfgang Prock-Schauer, told .Echoing similar sentiments, the Chief Financial Officer of the Delhi-based low-cost airline, SpiceJet, Mr Partha Sarathi Basu, added that the airline will need at least 2-3 months of stable ATF prices before it can review current airfares.The recent increase in ATF prices has hurt the entire industry which expects to post a loss of around Rs 4,000 crore this year. SpiceJet alone has reported a net loss of Rs 102 crore during the first quarter of the current year mainly on account of 132 per cent increase in fuel costs.

Courtasy Business Line

Source: PETROLEUM BAZAAR