`Oil companies must pass on the cut in transparent manner'

The Director of SpiceJet, Mr Ajay Singh, says that the fall in crude prices will mean a significant reduction in aviation turbine fuel (ATF) cost to the oil companies. He expects the oil companies to pass on the cut in a `transparent manner'. He expects at least 10 per cent cut from October 1. Excerpts from

CNBC-TV18

's exclusive interview with Mr Singh:

Can you give us an idea of what is the cut that you could expect from the oil PSUs on ATF?

We checked oil prices today. They seem to be trading at about $60. From a high of about $78 coming down to $60 would mean a significant reduction in ATF cost to the oil companies.

So, we certainly expect that they will pass on the cut in a transparent manner. As much as they increase the ATF prices when oil prices are going up, they should cut them now also. We expect at least 10 per cent cut from October 1.

Where would that position at, because in September these companies had raised ATF prices by up to Rs 1,919 per kilolitre and there have been fuel surcharge increases in ticketing prices subsequent to that? Deccan has affected it today, Jet affected at the beginning of the month. So, this cut that you are talking about what would the price be and how much of a relief do you think you would be able to pass on to customers?

We expect that ATF price to come down by at least 10 per cent if not more. ATF is the largest component of an airline cost, 46-47 per cent of the cost of an airline like SpiceJet comes from the cost of fuel. So, any reduction in the fuel cost makes a large difference to an airline like SpiceJet. In terms of what has to be passed on, that is something that all the airlines need to consider together.

There was significant period of time for which the fuel prices were going up and no fuel cess had been imposed by airlines. So, I think everybody needs to see whether there should be a pass on and what the quantum of that ought to pass on to the customers. But certainly, we think that reduction in ATF price augurs very well for the industry.

This 10 per cent cut in the ATF prices, how much would that really amount in terms of those savings on your margins?

From the perspective of SpiceJet, as I said 46 per cent of the cost is ATF and 10 per cent reduction in that cost leads straight to 5 per cent difference.

(This article was published in the Business Line print edition dated September 23, 2006)
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