The Hindu Business Line : Airlines make the most of lower fuel cost at Hyderabad airport

The first-ever open competitive system for supply of Aviation Turbine Fuel (ATF) at the Rajiv Gandhi International Airport (RGIA), Shamshabad, and sharp reduction in sales tax levied by the Andhra Pradesh Government have seen the ATF intake of airlines at the new airport doubling to 1,100 kilo litres (a kilo litre is 1,000 litres) from 550 kl, when it began commercial operations on March 23.

Clearly, the airlines, which had initially expressed concern over the huge recovery costs on every litre they buy, have started filling up their tanks at the new international airport.

The arithmetic is quite simple. The fuel, which used to cost Rs 52.31 a litre (or Rs 52,319 a kl) at the Begumpet Airport, is priced at Rs 38 a litre – a straight saving of Rs 14 for every litre an aircraft consumes.

Typically, an A-320 can take 24,000 litres, a Boeing-737 aircraft 22,000 litres and ATR 6,000 litres.

When the RGIA decided to levy Rs 2,100 on purchase of 1,000 litres, airline analysts felt that this would drive the airlines away from Hyderabad. But the increasing fuel intake proved them wrong.

There are two major reasons for the steep reduction of ATF price. Responding to a request by the Centre, the Andhra Pradesh Government had reduced sales tax on ATF to 4 per cent from 33 per cent.

“After analysing the sales trends, we found that reduction of tax on ATF helped significantly. But there is another major contributor. For the first time in the country, we have adopted a model similar to the Hong Kong model, allowing open access for fuel,” Mr A Vishwanath, Chief Commercial Officer (CMO) of GMR Hyderabad International Airport (GHIAL), told Business Line.

The system allows any oil company to sell oil to any airline depending on the agreements entered into with the latter. A back-of-the-envelope calculation showed that the competition triggered by the new system helped decrease the cost of fuel by 8 per cent.

The GHIAL roped in Red Malle, an Australian consultant, and Hong Kong Airport Services for advice. Reliance Industries has bagged the seven-year concession to run the fuel farm, which contain three storage tanks, with a total capacity of 13,500 kilo litres.

Fuel at the airport costs Rs 2,100 more for every kilo litre, with the service provider deciding to collect cost of recovery for setting up the fuel farm to offer fuel through open access system. This also includes a concession fee of Rs 360.

Mr Sam Sridharan, Chief Commercial Officer of SpiceJet, however, said that airline has not seen the benefit yet. “We did notice that there is a significant advantage after the reduction in sales tax. But with regard to the other benefit, we are still negotiating,” he said.

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