The Hindu Business Line : Airlines studying options to cut fuel costs

Mumbai, June 18 Domestic airlines are now exploring various options to cut down on their cost of fuel, which accounts for 40-50 per cent of their overall operating costs.

In what could be seen as a counter answer to the near monopoly of public sector oil companies in aviation turbine fuel (ATF), Jet Airways has already signed a contract with Shell-MRPL (Mangalore Refinery and Petrochemicals Ltd) joint venture while Kingfisher is exploring the option of directly importing ATF. “We are actively exploring the option and some decision should be coming in soon,” a spokesperson for Kingfisher Airlines told Business Line. However, Air India is keeping a more watchful approach.

According to the airline’s Executive Director of Finance, Mr S. Venkat, “We need to take a call keeping the cost economics in mind. While the price of ATF might be 30 per cent less if directly imported, the cost of its storage, refining and distribution to other airports still needs to be worked out.”

He added that if airlines have to individually maintain the infrastructure, it might not turn out to be that cost-effective as thought to be.

tax structure

Only earlier this week, Jet had announced its two-year contract with Shell-MRPL Aviation Fuels & Services Pvt Ltd.

Explaining the nature of the deal between Shell-MRPL and Jet Airways, a senior official from the airline told Business Line, “This is not a direct import of ATF. However, the tax structure is much more transparent in this system. While the price of ATF would fluctuate on a monthly basis as they are currently, components such as transport, administration cost and other differentials will be fixed for the period of contract.”

However, the official could not provide an immediate answer on how much savings this would result in.

Duty concern

Import of ATF might attract some countervailing duty from the Government and that is some cause for concern, said an industry expert. While no decision could be reached on the issue of sales tax relief on ATF in New Delhi, the industry is now waiting to see what will emerge from the June 23 meeting of the Empowered Committee of the State Finance Ministers on VAT.

The domestic airlines, under the aegis of the Federation of Indian Airlines, met last Friday and decided that they would cut down on flights and directly import ATF if the Government is unable to provide relief on the fuel issue.