Cut in jet fuel prices: Fares unchanged

Oil-marketing companies have cut prices of aviation turbine fuel or jet fuel for the first time in the last four months but domestic airlines are in no mood to pass on the reduction to customers.

Airlines say the price reduction is not significant enough to consider reducing prices of tickets.

"Jet fuel accounts for about 45 per cent of total operating costs. But this reduction in prices makes a difference of less than 1 per cent to our costs. A cut of about 5 per cent in jet fuel prices can be a substantial reduction since that will reduce our costs by about 2.5 per cent," said SpiceJet Director Ajay Singh.

Analysts said international carriers, too, were unlikely to cut price of tickets since their operations are also based on jet fuel prices in the country of their origin or destination.

Industry watchers agree that the impact of the price cut on domestic airlines is negligible.

"Jet fuel prices in India are 70 per cent higher than in South East Asia and the Gulf coast. The current reduction of around 2 per cent is going to have only minimal impact on airlines' fuel costs and it merely negates the May 2007 increase of 3.5 per cent. The government needs to consider more significant measures like rationalising sales tax and excise duty," said Rajeev Batra, executive director of tax consulting firm KPMG.

Prices of jet fuel have consistently been raised since the 11 per cent price cut in Delhi in February 2007. Since then, prices of the fuel have been raised 10.11 per cent till May this year, before the price cut today.

Jet fuel prices are not regulated by the government like other petroleum products such as petrol, diesel, LPG and kerosene.

The oil marketing companies revise jet fuel prices every month depending on the price of Oman and Dubai crude oil prices in the ratio of 60:40.

An Indian Oil Corporation spokesperson said the prices of the benchmark Oman-Dubai crude oil basket was lower in May, which had prompted the cut in prices this month.

The government-owned oil marketing companies "� Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum "� cut prices by 1.80 per cent for domestic airlines in Delhi, while prices in Mumbai were cut by Rs 717 per kilo litre or 1.85 per cent.

Prices of jet fuel for international carriers have also been cut by 1.3 per cent in both Delhi and Mumbai to $697.89 per kilo litre and $691.85 per kilo litre, respectively.