The Hindu Business Line : Domestic carriers welcome decision on ATF hedging

New Delhi April 24 The decision of the Reserve Bank of India to allow domestic airlines to hedge risk on aviation turbine fuel (ATF) lifted by them has been welcomed by the aviation sector.

Domestic airlines have, however, stated that the announcement would not immediately lead to any fall in air fares.

Fuel currently accounts for 35-40 per cent of the total operating costs of domestic airlines.

This is primarily because the domestic base price of ATF is higher compared to what is charged in Dubai or Singapore.

So far, domestic airlines were not allowed to hedge risk on fuel being uplifted for domestic operations.

In a statement, the Minister for Civil Aviation, Mr Praful Patel, said that the Ministry had been seeking this exemption for quite some time.

Mr Vijay Mallya, Chairman and Managing Director of Kingfisher Airlines, said that for the decision to be effective, attempts should also be made to lower the sales tax levied on ATF.

"In addition, the monopoly of State-owned oil companies needs to be ended before the real impact of the decision can be felt."

Mr V. Thulasidas, Chairman and Managing Director of Air India, said that any move that could even distantly reduce the burden of high fuel costs for the Indian airline industry was a step in the right direction.

Welcoming the decision, Mr G.R. Gopinath, Managing Director of Air Deccan, said that globally airlines hedge risk on at least 50 per cent of the fuel uplifted by them.

"While it is too early to say what impact the announcement will have on fares, it could have a positive impact on the bottomline of airlines. In the US, South West Airlines reported a huge profit largely on account of hedging," he added.

Expressing similar views, Mr Bruce Ashby, President and CEO of IndiGo Airlines, said that airlines would not be in a position to immediately review their fares.

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