The Hindu Business Line : Aviation fuel prices cut again; fare cuts unlikely for now

New Delhi, Nov. 15 The domestic oil companies have reduced the price of aviation turbine fuel by between Rs 5,500 and Rs 6,000 a kilolitre at the four major metros. The decision of the oil companies means that domestic airlines will be paying for ATF what they were in August 2007.

The latest move is likely to cut the airlines annual fuel bill by about 10 per cent and result in an annual saving for the industry of between Rs 1,000 crore and Rs 1,200 crore.

This reduction will, however, not immediately translate into lower fares. Domestic airlines cite the depreciation of the rupee which is increasing their costs, the huge losses that have been accumulated in the last six months and also the higher airports charges in India as reasons for not lowering fares just yet.

On Saturday, Indian Oil announced that airlines will pay Rs 39.38 for every litre of ATF being lifted in Delhi down from Rs 44.96 a litre being charged till now. Similarly, in Chennai domestic airlines will now be charged Rs 43.64 a litre down from Rs 49.67 being charged earlier.

Pointing out that it was “too early” to think of any price change, the Chief Commercial Officer, Spice Jet, Mr Samyukth Sridharan, told Business Line that the airline will evaluate the impact next week and decide on any pricing change.

Besides, the decision of Organisation of the Petroleum Exporting Countries (OPEC) to cut oil production has also raised fears in the industry that the downward revision in global oil prices could be a temporary phenomenon. “With fuel accounting for 45-50 per cent of the operating cost of most domestic airlines, it is better to be cautious and see where crude stabilises before taking a decision on pricing. Also do not over look the fact that ATF prices in India are almost 70 per cent higher than what is charged in either Dubai or Singapore despite the latest cuts,” said the Chief Financial Officer of a full service airline.

Airline industry officials indicated that while any price cut will be welcomed by passengers it could have a negative impact on the bottomline of most airlines. “At the moment hardly any domestic airline is making money. If a medium sized airline which carries around 50 lakh passengers a year reduces fares by Rs 100, it is a minor saving for the passenger but a hit of Rs 150 crore on the bottomline of the airline,” he said.

To return to health the industry has been taking a number of steps including rationalising capacity. Official sources said that the number of weekly flight departures had fallen from 10,922 in March to 8,949 in September.

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