Despite ATF duty cut, airfares won’t fall

NEW DELHI/ MUMBAI/ BANGALORE:  It’s a double bonanza for airlines — a 16.8% slash in jet fuel prices (over Rs 9,400 per kilolitre) in the current month, and the abolition of custom duty on it. But this is unlikely to lead to air fares coming down.

Jitendra Bhargava, director (PR) of state-owned Air India, said, “There is no denying that there would be some saving (from these moves) but I don’t see any revision of airfares.”

On Friday, IndianOil, Bharat Petroleum and Hindustan Petroleum cut jet fuel prices in Delhi by Rs 9,429.87 per kl to Rs 47,017.93 per kl. In Mumbai, the ATF prices were cut to Rs 48,656.59 per kl from Rs 58,479.37 per kl. Since September, ATF prices have fallen by about Rs 24,000 per kl.

The latest cut in the aviation turbine fuel (ATF) prices by the oil marketing companies is the third in as many months, while custom duty has been brought down from 5% to zero.

In June, it was brought down from 10% to 5%.

This is expected to provide a big relief to the domestic carriers. But they are still not ready to pass on the benefit to the passengers.

Bhargava said the airlines had to first bring down the losses incurred due to increases in ATF prices early this year, before the benefit of savings was passed on to customers.
He said Air India had overshot its fuel budget by around Rs 1,400 crore in the first five months of this year due to ATF price hikes.

Jet Airways, SpiceJet and Kingfisher Airlines will take a call on the fare revision early next week.

A Raghunathan, chief financial officer, Kingfisher Airlines, said, “We haven’t discussed it as yet. By Monday we will come back with our view.”

He said the impact of the decline in oil prices has partly been offset by a devalued rupee.

A Jet Airways official who did not want to be named said, “We have to wait and see where oil stabilises.”

Another budget airline executive said that only rationalisation of sales tax would impact the air ticket prices. “The incidence of sales tax in some states is as high as 34%. This is backbreaking,” said the no-frills airline executive.

North Block differed in its view. A statement issued by the finance ministry said: “Though there are no imports of ATF and it is a freely priced petroleum product, the price of domestically produced ATF is based on import parity price factoring in the basic customs duty. The exemption would result in lowering of the base price of ATF and consequently, lowering the incidence of excise duty and VAT, giving substantial
relief to the aviation sector.”

Praful Patel, the civil aviation minister, also said the abolition of custom duty would help ailing aviation industry to get back to good health.

“I welcome the decision… I thank the finance minister for taking such a proactive stance. I look forward to other issues relating to this sector also being favourably resolved. Such initiatives will help the sector and benefit the passengers in the long run,” he said.

The final ATF price charged to airlines is loaded with excise duty of 8%, an education cess of 3% and sales tax averaging 25%, besides the customs duty.

The cut in customs duty is expected to translate into reduction in each of these levies.
An analyst with a foreign brokerage said on condition of anonymity, “Airlines, which have been bleeding, are viewing the relief in fuel prices as an opportunity to erase some of the red ink from their books. But eventually, they might have to pass on some to customers to attract them back into flying.”

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