Indian carriers are not in a hurry to cut fares, even after state run oil marketing companies announced a 3% cut in aviation turbine fuel (ATF) prices Sunday night, the first in seven months. Airlines like Jet Airways, Kingfisher Airlines and low fare carrier SpiceJet have not announced an immediate fare cut, since ATF cost has come down after 14 consecutive hikes in the past seven months.
In fact, ATF prices have risen 49% since October last year, which means the current price cut will not translate into much relief for airlines. Fuel expenses account for 40% of an airline?s operating cost.
A spokesperson from Jet, said, ?There is no news on fare hikes from the airline.? Similarly, Kingfisher, SpiceJet, Indigo and GoAir have not announced any fare cut as yet.
Oil marketing companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum revise jet fuel prices on the first and the 16th day of every month based on the average global oil price in the previous fortnight, unlike other fuels like petrol and diesel. The May 1-15 average of the basket of crude oil at which India buys is currently at $112.32 per barrel, and is lower than the $118 per barrel average of the previous month. On May 5, crude prices fell below $100 a barrel for the first time in several weeks.
Jet Airways had a fuel bill of R1,097 crore for the December quarter of financial year 2010-11, while Kingfisher also paid R902 crore towards fuel consumption for the same quarter. This is at least 50% higher compared to what international carriers pay in West Asia. Airlines say this anomaly is owing to the higher sales tax on ATF prevalent in the country.
ATF prices vary from airport to airport depending on the local sales taxes. Sales tax on ATF varies from 4% to as high as 32% from state to state. While sales tax on ATF is capped at 4% in Andhra Pradesh, it is 24% in Mumbai and in Delhi, 20%. The airline industry has been demanding a declared goods status for ATF, which will attract a uniform 4% tax across the country.
An airline executive said, ?Airlines will reduce fares only if ATF price is consistently reduced for some months.? He added that the decline in ATF cost should be consistent so that airlines can pass on the benefits to customers.
In Delhi, jet fuel price has fallen 2.9% to R58,794 per kilolitre (kl) as on May 15, while in Mumbai, ATF prices have dropped 3% to R59,602 per kl from the earlier R61,429.