ATF price cut impact will be visible in Q3

While global crude oil price fell 21% since June, domestic aviation turbine fuel price dropped 0.8% between July and Sept

While global crude oil prices have fallen 21% since June, the price of domestic aviation turbine fuel dropped 0.8% between July and September. ATF prices were cut an additional 3%, effective October, bringing relief to airlines

Domestic airlines expect the fall in prices of aviation fuel to boost their earnings from the quarter ending December.

While global crude oil prices have fallen 21 per cent since June, the price of domestic aviation turbine fuel (ATF) dropped only 0.8 per cent between July and September. ATF prices were cut an additional three per cent, effective October, bringing relief to airlines.

“We should see the good impact of the ATF price in the third quarter. Revision in ATF price, as a result of the lower crude price, is implemented with a lag,” said a senior executive of a private airline. “Recently, the government cut value-added tax on jet fuel in Seemandhra — from 16 per cent to one per cent.”

Amber Dubey, partner and India head (aerospace and defence), KPMG, said, “The three per cent reduction in ATF price is welcome, but not a great relief to the beleaguered airline sector. In India, ATF prices are still 45-50 per cent higher than global prices, thanks to excessive customs, excise and state taxes. Unless the price is brought closer to global levels, we will not see aviation reach the common Indian. Low air traffic and cash-strapped airlines are not good news for trade, tourism and the Indian economy at large.”

In Delhi, domestic ATF is priced at Rs 67,525 a kilolitre, against Rs 70,161 in July and Rs 71,800 in April.

Fuel costs accounts for 35-40 per cent of an airline’s operating expenses. According to an HSBC Global Research report, cost pressures on domestic airlines were easing, albeit unevenly. The report said only a few states had reduced taxes on jet fuel, adding for airlines to see a meaningful reduction in fuel costs, this had to be done on a more widespread basis.

The report said through the past decade, domestic jet fuel prices in India were 41-61 per cent higher than in Singapore; international jet fuel prices were 13-28 per cent higher.

In 2013-14, airlines consumed about 5.5 million tonnes of ATF, with the bulk of sales at the airports in Delhi, Mumbai, Bangalore, Chennai and Hyderabad.