Airlines to raise fares to adjust hike in ATF.

The restoration of 5 per cent excise duty on the import of crude oil will result in a rise in air fares soon. In June 2008, the government fully exempted basic customs duty on crude petroleum when the price of the Indian crude basket reached a high of $112 per barrel.

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Sources in the oil companies say that the restoration of 5 per cent excise duty will on an average lead to a hike of Rs 1,400 per kilo litre of aviation transport fuel (ATF). Its prices in Delhi and Mumbai are Rs 37,982.22 and Rs 39,166.64 per kilo litre, respectively.

In the domestic sector, jet fuel accounts for around 40 per cent of the total operating cost compared with 22 per cent in the international sector.

“Airlines cannot absorb this huge hike in jet fuel prices, and since the passenger numbers are good, it will be passed on to consumers leading to a rise in airfares,” said Raajeev Batra, executive director at KPMG, a financial advisory firm.

Airlines have already petitioned the government to rationalise sales tax on ATF, which varies from 4 per cent to 30 per cent across different states in the country.

Though air carriers, which after a long time registered some profit in the third quarter of this financial year, have not decided on the impact, but say they will not be able to absorb the hike.

“The hike in jet fuel and service tax on domestic passengers will be huge and we will not be able to absorb it. We will look towards increasing fares,” said Paramount Airways Managing Director M Thiagarajan, who also heads the CII committee on aviation.

Meanwhile, the gross budgetary support to the civil aviation ministry has been increased by 117 per cent to Rs 2,000 crore for 2010-11. Of this allocation, Rs 1,200 crore is for Air India, Rs 85 crore for Airports Authority of India and Rs 120.50 crore for projects in the north east.

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