Air India hopes to save about Rs 300 crore from direct import of aviation turbine fuel (ATF). Last week, the airline decided to import ATF directly and is in talks with Reliance Industries Limited (RIL) and a public sector oil marketing company for a tie-up.
Air India's annual fuel bill last year was about Rs 8,000 crore, of which about Rs 3,000 crore was for international operations purchased locally and from international airports. "The sales tax component in our ATF bill was about Rs 600 crore and we can save at least 50 per cent by going in for import,'' a senior Air India executive said. "We will be selecting a service provider who will assist us in import, storage, transport and supply fuel to us. We are in talks with oil companies and in due course will apply to the Director General Foreign Trade (DGFT) for licence. We will start from one airport and progressively add more cities,'' he added.
Last week, SpiceJet announced it has applied for DGFT permission to import the fuel and is likely to tie-up with RIL to directly import the aviation fuel. SpiceJet chief executive officer Neil Mills told this paper last week that he expects seven per cent saving in fuel bill. Kingfisher too, is interested in buying fuel directly.
The government recently allowed the airlines to import fuel directly. The relaxation was aimed at providing respite to domestic carriers, which had to mandatorily buy ATF from public-sector oil companies and pay substantial sales tax. Annually, about Rs 2,500 crore is collected in sales tax on sale of aviation fuel.
Air India has also given a nod for fuel hedging and sanctioned about $10 million (about Rs 50 crore) for purchase of fuel hedge caps. The airline hopes to begin fuel hedging in first quarter of the current financial year. This is the second time that the national carrier is going for fuel hedging. Last time, Air India hedged fuel was in 2006. Fuel makes around 40 per cent of Air India's operating expense.
"Our financial and operating performance has shown growth. There was 32 per cent and 35 per cent growth in revenue in February and March, respectively. The trends are positive. Business class occupancy has doubled after Kingfisher scaled down flights. Loads in economy class too have improved,'' the executive quoted above said. However, rising fuel costs is eating into the airline’s revenue.
The airline said impact of fuel price hike was additional Rs 2,200 crore to its overall expense. Besides, the additional interest cost of Rs 1,500 crore had eroded the profitability, Air India said in a statement last week.
According to sources, it is facing a shortfall of about Rs 500 crore in revenue. "The gap is narrowing now. Next year, we hope to make operating profits,'' he said.
