Softening of crude oil prices may not help airlines as ATF to remain high

Written by Shaheen Mansuri | Mumbai, Aug 22 | Updated: Aug 24 2008, 05:27am hrs
Despite the softening of crude oil price globally, oil and gas sector analysts dont see any fall in the aviation turbine fuel (ATF) prices in the short to medium term. Also, oil marketing companies are not certain whether the crude oil will further soften or not, and cannot ascertain whether ATF prices will reduce for the ensuing month. Oil companies revise the ATF prices each month, depending on the crude oil price globally.

Arvind Mahajan, executive director, KPMG Advisory Services told FE , Even if there is a further slide in the crude oil prices, oil marketing companies will not be able to pass on the benefit to the airline companies who purchase ATF from them. He added that even at current crude price of $113.52 per barrel, fuel retailers would end the year with net losses. It is because these companies are still reeling under losses or underrecoveries and there has also been a sharp rise in the input costs for the oil companies, he added. Mahajan added that crude oil price is determined by bottlenecks and the supply. The market remains volatile and hence its unpredictable to say whether the crude oil price will further slide to head northwards. However state-run oil marketing company BPCL (Bharat Petroleum Corporation Ltd) said that its not clear where the oil prices will head next month so its very difficult to say whether the ATF prices will come down. It may be noted that the crude oil for India has fallen to $ 113.52 a barrel in August, as compared to $132.47 a barrel in July.

Meanwhile Essar Oil Ltd in an email response to FE stated, If the prices remain at the current levels till end of the month, we expect a drop of more than Rs 8,000 per kiloliter. It may be noted that on August 1, the ATF was priced at Rs 73,673.56 per kiloliter in Mumbai and at Rs 71,028.26 in Delhi, a hike of 3% as compared to July. To conclude airlines are of the opinion that even though the ATF price will come down, the air fares will not go down. We dont pass on the entire burden onto the consumers every time the ATF prices go up. So it is highly unlikely that we will reduce the airfares this month but it also depends on the quantum of ATF price reduction, says an official from a full service carrier.