India may soon have a new mechanism to price aviation turbine fuel (ATF) for airlines which will bring more parity between global crude price and ATF price in India, according to a report by The Economic Times.
This, say, airline executives, may take down the cost of ATF by at least 15% and will be a big boost for ailing Indian carriers for whom ATF consists of 40% of the total cost of operations. ATF prices have seen a more than 50% hike since January.
It will also bring more reliability and predictability to fuel pricing and allow them the cushion of hedging and control of their output cost. Executives of OMCs said that they are working on a dual pricing system where the price of ATF in metro and remote locations may be different and a handling charge may be added for airports in remote locations to cover transportation costs.
A delegation led by civil aviation minister Jyotiraditya Scindia and top airline executives this month told the petroleum ministry that the current pricing mechanism is unfavourable to them and making operations unviable.
The civil aviation ministry is also engaging with states to bring VAT on ATF within the range of 1-4%. “In 2020, 12 states had VAT on ATF in the range of 1-4% and 26 states levied VAT from 15-30%.
With constant persuasion the picture has completely reversed now with 15 more states including states like UP and Karnataka with large airports like Lucknow & Bengaluru reducing VAT to 1-4%,” said a senior civil aviation ministry official.
Aviation turbine fuel prices saw an unexpected rise on June 16. After this hike, ATF prices hit an all-time high in metros like Delhi, Mumbai, Chennai and Kolkata. For domestic airlines, ATF costs stand at Rs 1, 41,232.87 per kl (Delhi); Rs 1, 46,322.23 per kl (Kolkata); Rs 1, 40,092.74 per kl (Mumbai) and Rs 1, 46,215.85 per kl (Chennai).
ATF rates are revised on the first and the 16th of every month by factoring in equivalent rates in the international market and local taxes. Jet fuel makes up around 40 per cent of the running cost of an airline.
Airlines in India have earlier urged the civil aviation ministry to increase caps on domestic fares, given the sharp rise in prices of aviation turbine fuel over the past two months and expectations that crude oil prices are expected to remain high due to the Russia-Ukraine conflict.
(With inputs from The Economic Times)