ATF cut won’t lower fares

Oil com­pa­nies have cut avi­a­tion fuel price by an aver­age 250/kl. How­ever, it’s un­likely to trans­late into bet­ter prof­itabil­ity for air­lines and lower air­fares.

TravTalk - India - - Aviation - TEENA BARUAH

This is not go­ing to make any per­cep­ti­ble im­pact on air­lines’ op­er­at­ing costs There is an ur­gent need for trans­parency in avi­a­tion tur­bine fuel pric­ing Tem­po­rary in­crease or de­crease of ATF has noth­ing to do with air­line profit or loss

In­dian oil retailers have cut avi­a­tion fuel cost (ATF) by an aver­age of 250/kilo­litre (KL) from June 1, on the back of soften­ing in­ter­na­tional crude oil price, mak­ing it the third steep­est de­cline since March 1.

Ac­cord­ing to the In­dian Oil Cor­po­ra­tion web­site, the price for ATF in Mum­bai would now cost 64,381.15/kl from

64,624.69/kl. This means, in Delhi, do­mes­tic car­ri­ers will have to shell out 62,416.16/kl against 62,649.95/kl if they re­fill fuel. Rates at dif­fer­ent air­ports vary be­cause of dif­fer­en­tial in lo­cal sales tax or VAT. Kolkata would see price cut of around

` 260 to ` 72,250.952 per kl, while it will cost ` 67,925.43 in Chen­nai as against

` 68,191.73 per kl pre­vi­ously.

Arun Mishra, Di­rec­tor Gen­eral of Civil Avi­a­tion, tells TravTalk, “While re­duc­tion in ATF price is a good de­vel­op­ment, the re­duc­tion is not sig­nif­i­cant (0.3%). This is not go­ing to make any per­cep­ti­ble im­pact on air­lines’ op­er­at­ing costs. The main is­sue in ATF costs is the huge sales tax on ATF levied by the state gov­ern­ments. Both Min­istry of Civil Avi­a­tion and the air­line in­dus­try have been con­stantly urg­ing the states to re­duce the taxes as it will have a good im­pact on low­er­ing of ticket prices as well as im­prov­ing con­nec­tiv­ity to states. ATF ac­counts for 40-50% of op­er­at­ing cost of air­lines. Re­duc­tion in ATF prices would trans­late into bet­ter prof­itabil- ity of air­lines which means growth of air­lines and civil avi­a­tion sec­tor in gen­eral.”

Am­ber Dubey, Part­ner and Head-Avi­a­tion at global con­sul­tancy KPMG, agrees, say­ing, “A 25 paise per litre re­duc­tion in ATF, which costs any­where from 62-74 per litre, is wel­come but in­ad­e­quate. It may have near-zero im­pact on air­fares.”

“There is an ur­gent need for trans­parency in ATF fuel- pric­ing. It should be priced on an ef­fi­cient cost plus fair-mar­gin ba­sis by oil com­pa­nies, and not on an opaque im­port-par­ity pric­ing ba­sis. Added to that is the ex­ces­sive 22-35% sales tax which ren­ders our ATF one of the costli­est in the worl­dal­most 50-60% costlier than com­pet­ing re­gions like Mid­dle East and SE Asia. ATF in In­dia should be priced at ` 42-45 per litre if we have to achieve our tar­get of be­com­ing the third largest avi­a­tion mar­ket by 2020,” Dubey adds.

Biji Eapen, Pres­i­dent, IATA Agents As­so­ci­a­tion of In­dia, “In In­dia, when­ever there is any in­crease in ATF price, our car­ri­ers en­hance ticket prices im­me­di­ately, es­pe­cially Air In­dia and Jet. Variation of fuel sur­charge should be in res­o­nance with ATF price variation. How­ever, In­dian car­ri­ers are not known to have re­vised the prices down­ward, even when ATF price fell. Hence, tem­po­rary in­crease or de­crease of ATF has noth­ing to do with air­line profit or loss and the trav­el­ling pub­lic should get the ben­e­fit of re­duced costs.”

Mean­while, di­rect im­port of ATF by air­lines sounds good, but is very dif­fi­cult to im­ple­ment. ATF im­port, trans­porta­tion, stor­age and sup­ply to the air­craft is a com­plex sub­ject and not some­thing that air­line man­age­ments would like to waste their time and en­ergy on. Dubey points out that they would be­come the laugh­ing stock of the world if air­lines do di­rect im­port from for­eign sup­pli­ers, since chances are that it could ac­tu­ally be ATF pro­duced and ex­ported by our own re­finer­ies. “Ac­cord­ing to in­dus­try sources, last year In­dia ex­ported nearly 50% of its ATF pro­duc­tion. Imag­ine the cost and has­sle of im­port­ing back our own pro­duce, just be­cause we can’t get our tax­a­tion struc­ture right. And af­ter all this, noth­ing stops states that may lose out on ATF taxes to im­pose taxes in the form of ‘en­try tax’, putting this whole ex­er­cise in jeop­ardy,” he con­cludes.

Arun Mishra

Di­rec­tor Gen­eral of Civil Avi­a­tion

Am­ber Dubey

Part­ner and Head-Avi­a­tion KPMG

Biji Eapen

Pres­i­dent IATA Agents As­so­ci­a­tion of In­dia

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