Aviation fuel demand rebounds

After 4 years of nearly flat growth, ATF consumption jumped 9% in FY16; trend expected to stay as sector outlook turns sunny

State-run oil marketing companies (OMCs) are seeing a rebound in demand for aviation turbine fuel (ATF), with airline companies flying high on improved operations and profitability.

Data on ATF consumption with the Petroleum Planning and Analysis Cell of the government show a jump of nine per cent in 2015-16 to 6.2 million tonnes. In the four years between FY12 and FY15, the consumption had an annual compound growth of only one per cent. Indian Oil Corporation (IOC) saw a six to seven per cent rise in FY16, said a company official. It is the largest ATF supplier. Consumption and sales volumes for oil companies might differ slightly, due to imported ATF volumes; also, the data for FY16 is provisional.

In recent years, airlines had scaled down operations. In October 2012, Kingfisher Airlines stopped plying. Financial woes also forced SpiceJet to scale down  between 2014 and 2015, before a new investor stepped in and improved both operations and performance.

“The improvement in FY16 was due to SpiceJet scaling up operations and the entry of new airlines AirAsia and Vistara,” the IOC official said.  “We expect the volumes to grow at six-seven per cent for the next two to three years.”

IOC plans to add four or five supply stations in this financial year. Vistara, a joint venture between Tata Sons and Singapore Airlines, started operations in January 2015. AirAsia India, another JV airline of Tata Sons, with AirAsia Bhd of Malaysia, started in June 2014. Airlines also improved operations due to falling crude oil prices.

 

A Hindustan Petroleum Corporation spokesperson expects growth in ATF sales to remain positive and pegged the increase in sales for the past financial year at 7.5 per cent. “It is expected to remain positive in the future due to factors like the new regional connectivity scheme, allowing of (higher) foreign investment in the sector, loosening of the 5/20 rule (for plying abroad) and a strongly growing middle class base in India,” the spokesperson said. In June, the government removed the clause which barred airlines from plying abroad till they’d completed at least five years of domestic operations. Bharat Petroleum Corporation expects growth rates to be higher in the next two to three years. “We anticipate healthy year-on-year growth of nine to 10 per cent in industry ATF volume sales and our’s will be in line with this,” a spokesperson said. It is likely to add three to four stations this year.   “Air travel has been on a rise and demand for ATF is likely to remain high. However, the state-run OMCs (IOC, BPC, HPC) might face a hurdle if private companies offer higher competition,” said an analyst from a domestic brokerage, who did not wish to be identified.

So far, private oil refining companies (only Essar and Reliance so far) have failed to make a dent in the ATF market. “Essar Oil is not present in the domestic supply business since the start of 2016,” a spokesperson said in an e-mail response on Wednesday. The company earlier operated three such fuel stations.

“We are very optimistic about the prospects of the ATF business, on the back of growing airline traffic and soft crude oil prices. We will aggressively grow the business and offer our customers world-class services. With the government planning to invest in 50 new airports, we are confident about the growth in coming years,” a spokesperson for Reliance Industries said, without sharing any growth estimates.

Hikes in the fees involved in marketing of ATF and lack of new airport infrastructure facilities has left private companies limited opportunity to add new stations and compete with the state-run ones.

However, a cautionary note. Any significant increase in Indian airlines importing fuel directly or a significant rise in crude oil prices could spoil the party for the state-run OMCs. So far, IndiGo airlines has managed to import some directly to meet some of its requirements.