State-owned oil marketing companies today cut aviation turbine fuel (ATF) prices by 16 per cent, while the government abolished the 5 per cent Customs duty on the fuel. This will help the airlines cut their fuel bill by another 3-4 per cent.
The measures are also expected to push airlines towards financial break-even. Experts have pegged the aviation sector losses at Rs 8,000 crore for the current financial year on account of high ATF prices.
Currently, ATF accounts for 45-50 per cent of an airline’s costs. The two steps together will help them pare their overall costs by 9-10 per cent, and bridge almost two-thirds of the 15 per cent gap between revenue and costs. Inclusive of today’s cut, ATF price decrease since August has been 33 per cent.
The new ATF prices will come into effect from November 1. According to a recent decision of the petroleum ministry, the next revision in ATF prices will happen on November 15. The price cuts due to abolition of the Customs duty will, however, come into effect after the oil companies take a decision on it.
“I look forward to other issues relating to this sector being favourably resolved. Such initiatives will help the sector and benefit passengers in the long run,” Civil Aviation Minister Praful Patel said after Finance Minister P Chidambaram announced the Customs duty abolition.
“The exemption will result in lowering of the base price of ATF and, consequently, lowering of the incidence of excise duty and VAT, giving substantial relief to the aviation sector,” the finance ministry said in a statement.
The government, however, is not likely to lose any revenue due to the exemption as the country’s oil companies do not import the fuel. The zero duty will, however, reduce the selling price of the fuel for the refiners, which benchmark the ATF prices against the landed import costs.
Low-cost as well as full-service carriers expressed their happiness over today’s developments. While SpiceJet said that this benefit would be passed on to the customers, full-service carriers like Kingfisher said they could not immediately take a call on it.
“We are very happy with the proactive decision of the government, but we will have to look at the numbers before taking a decision. Also, the major impact will only come if the sales tax on ATF becomes a uniform 4 per cent,” said Kingfisher Airlines Executive Vice-President Hitesh Patel.
The cut in ATF prices is the latest in a string of benefits that the cash-strapped oil companies have given to the airlines. Recently, they announced benefits on the Rs 2,500 crore dues that the airlines owe them, including interest-free repayment of the dues in six monthly installments till March 31, 2009.