Comments
India has introduced a new pricing mechanism for ATF (jet fuel) beginning Q3 FY23 (October – December period). The new price mechanism – which replaces the Import Parity Price based system – will be benchmarked on the MOPAG or Mean of Platts Arab Gulf and could bring in more parity between global crude price and jet fuel price in India.
Those in the know say, the new pricing mechanism will be “more transparent” and cushion airlines from ATF price fluctuations. MOPAG pricing refers to paying the same price that is paid in Dubai for ATF.
The mechanism could see 10 -15 per cent reduction in price say some industry sources, while others say its too early to comment.
The decision to use MOPAG as a benchmark was taken after a meeting of the airlines top brass, oil marketing companies (OMCs), the Ministry of Petroleum and Natural Gas and the Civil Aviation Ministry.
“Indian airlines are also expected to benefit from the new pricing mechanism of aviation turbine fuel (ATF) in India, with oil marketing companies (OMCs) and airlines planning to set MOPAG as the global benchmark,” Motilal Oswal said in a recent report.
, IndiGo’s CFO, Gaurav Negi, during an analysts call had said, “The way the pricing of ATF is being done is undergoing a change as we speak.“ IndiGo, the country’s largest carrier, saw fuel costs rise over 214 per cent y-o-y in Q2 FY23 (July – Sept) to ₹6,258 crore against ₹1,989 crore in Q2 FY22.
Earlier pricing mechanism
Following the dismantling of the ‘Administered Price Mechanism’ (APM) in April 2001, the ATF price in India was fixed based on the International Import Parity Price, and is linked to the benchmark of Platt’s publication of Fee on Board Arabian Gulf (AG) ATF prices.
According to a senior aviation industry official, the older system did not capture the true cost and the price of producing ATF in India goes against airlines. The ATF price saw a steep hike when Brent crude price increased, but when there was a fall in price , the reduction was not in the same proportion.
“There is a lot more transparency that’s starting to come in. But, we will soon get a better picture. Going forward, the pricing will more be to the MOPAG pricing,” IndiGo management said during the post earnings call.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.