Higher fuel charge may hike cost for airlines

Travellers may have to pay more for flying to and from Chennai or Kolkata. The oil companies which have bid for new fuel stations at these airports have offered throughput fees which is 17 (Kolkata) to 21 (Chennai) times higher than what the state-owned PSUs pay. Three state-owned oil companies which are already supplying fuel at these airports will also have to pay the higher throughput fees.

Throughput fees are paid by fuel suppliers to the airport developer, in this case the Airport Authority of India (AAI). This is the first time the AAI has decided to go for bidding for the throughput fees after the fuel supply business was opened to the private sector.

Earlier, the throughput price was fixed by the AAI as only PSUs were allowed to supply aircraft fuel.

The AAI recently invited bids for one fuel station each in Chennai and Kolkata with the clause that the supplier offering the highest throughput fees would get the contract.

This fee would also be levied on the existing suppliers. The Indian Oil Corporation (IOC) got the contract for both the stations by bidding Rs 1200/kl, according to the Federation of Indian Airlines' (FIA) figures.

Airlines say this will cause an additional burden, though they are not sure how much of the additional cost will be passed on to them since the oil companies do not give the cost break-up. Considering that in April 2007, IOC supplied around 28,000 kilolitres of aircraft fuel in Chennai, the revenue could go up from Rs 15 lakh a month to above Rs 3 crore.

"It may make a difference of 2-3 per cent to the cost, which will be passed on to the travellers since it is impossible for us to absorb the costs," said Ajay Singh, director, Spice Jet.

The International Air Transport Association (IATA) and the FIA have already made representations to the government calling the hike unfair.

"The hike is not based on the cost of doing business. Already, the aviation turbine fuel (ATF) cost is extremely high due to the high sales tax levied by the state governments. The ministry is talking of undoing the monopoly of the oil PSUs and decreasing ATF prices. This will totally negate that," said an IATA official.

The IATA and the FIA say the trend will spread to all the airports and not necessarily the ones run by the AAI.

Civil Aviation Joint Secretary KN Shrivastava said the ministry was looking into the matter. "There is a fault with this model and we are looking into it," he said on the sidelines of an aviation summit organised by Assocham and Ernst and Young recently.