Fuel dips, air fares may follow

Aviation Turbine fuel prices have fallen by 14% after three months

Aviation turbine fuel (ATF) price in the country has fallen by about 14 per cent from Rs 24, 566 per kilo litre to Rs 21, 549 per kilo litre, raising hopes that airfare in the domestic market will come down soon.

Airlines are currently evaluating the position and a call on fares will be taken later. "We are looking at the options available. If the price cut continues for some time, we will pass it on to the consumers," said a senior executive with a private airline.

Airlines industry sources said that the ATF price cut has come after three months and they would wait for some time to announce any change in the fares.

They said that with the ATF accounting for about 30 per cent of the operational cost of an airline, the cut in fuel price will result in considerable savings for the airlines.

"Even when the fare hike was announced, the airlines waited for some month to announce a 10 per cent hike. This move by the oil companies is a welcome one," said a senior executive with a private airline.

Domestic carriers increased the fares by 10 per cent for the second time in October 14, after the ATF prices increased by 19 per cent increase.

For the first time in this year, in June all the domestic carriers had announced a 10 per cent increase in airfare as a result of the increase in ATF prices.

Airlines said that fall in ATF prices will provide a great relief to their financials as they were under pressure due to the fuel price increase.

For example, Jet Airways has seen its cost of operations going up by about Rs 14 crore a month as a result of the ATF price increase compared to June 2004.

As a result of this, the component of ATF in its cost of operations has gone up to about 33 per cent now from 28 per cent in June this year.

For Air Sahara, the cost of operations has gone up by about Rs 8 crore a month as a result of the increase in fuel price over the past four months.

Indian Airlines had incurred an additional expense of Rs 224.34 crore in 2002-03 on account of the increase in ATF prices. The total fuel bill of the carrier was Rs 975 crore in 2002-03 against Rs 808.98 crore in the previous year.

Meanwhile, the government is evaluating various options including dismantling the monopoly of public sector oil companies in the supply of turbine fuel to rationalise the fuel prices.

It has also proposed a uniform sales tax at 4 per cent across the states to bring down the aviation fuel cost in the domestic market.