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Jet fuel prices down 7.3% but still no change in air fares

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Oil market companies (OMCs) have announced a 7.3% reduction in aviation turbine fuel (ATF) or jet fuel, in the fourth straight cut since August.

However, airline companies are unlikely to pass on the benefits to the consumers as the industry continues to bleed on higher operational costs.

ATF in Delhi was cut by Rs 4,987.7 per kilo litre, or 7.3%, to Rs 62,537.93 per kl on Saturday. In Mumbai, it now costs Rs 64,414.98 per kl against Rs 69,610.5 per kl earlier.

OMCs revise jet fuel prices on the first of every month, based on global prices the previous month. Rates vary from state to state because of differences in sales tax or VAT. ATF prices were cut 3% in October and by another 0.8% between July and September.

The ongoing fare war has reached such a stage that despite the huge cut in the jet fuel prices, airlines feel there is "no room" for further reduction in fares. Since January, fares have dipped around 25%. Entry of airlines like Air Asia India and Air Costa has intensified competition in the domestic market, pushing down basic fares to as low as Rs 699, industry experts say.

Sanjiv Kapoor, chief operating officer, SpiceJet, said fares in the local markets were already very low. "On an average, there was no room for any further reduction. Ad hoc, there can be some discounts, but, beyond that, there is no scope for bringing down ticket prices anymore," he said.

A senior executive of another airline, who did not want to be named, also said fares could not go down any further, with several sales offers by airlines since January. "There have been more than 20 sales by different airlines. This means we have had two sales every month since the beginning of this year," he said.

Sudhakar Reddy, president, passengers association of India, says airlines have never lowered fuel surcharges whenever there has been a reduction in fuel rates. "Airlines happily increase airfares whenever there is increase in fuel rates. However, they never lower fares when fuel rates come down," he said.

The association champions the cause of fliers with the civil aviation ministry and the airlines.

But airline officials said they may use this opportunity to reduce their losses. According to Kapoor, his airline will save over Rs 300 crore due to lower ATF prices. "We will be able to reduce our bleeding (due to the several cuts in ATF prices)," he said.

Last year, the aviation industry lost around $1.5 billion and had accumulated losses of $10.6 billion. Jet Airways lost Rs 4,200 crore, Air India Rs 5,000 crore, SpiceJet Rs 1,000 crore and GoAir lost Rs 5 crore. IndiGo made a net profit of Rs 317 crore.

"Any reduction in fuel prices is good for airlines. ATF forms around 45% of operational costs. Reduced fuel prices will help in reducing losses. However, if constant fare undercutting continues, it is unlikely that airlines will come out of their financial burden," said Amrit Pandurangi, senior director, Deloitte.

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