Basic customs duty on jet fuel goes; IOC cuts price

But airlines hold out no promises on fare cuts.

The basic customs duty of five per cent on aviation turbine fuel (ATF) has been completely removed. The sale price of ATF has also been reduced by 15-17 per cent across the four metros.

This will help bring down costs of domestic airlines. In the near term, it will reduce their losses. In the medium term it may lead to fare reductions. This is primarily because fuel constitutes 45-50 per cent of the operating cost of most domestic airlines.

On Friday, Indian Oil announced that ATF will cost Rs 47.01 a litre in Delhi, down from Rs 56.44 a litre the previous month. Similarly, domestic airlines refuelling in Chennai will now pay Rs 51.89 a litre as against Rs 62.05 the previous month.

Citing various reasons including the rising cost of aviation turbine fuel, the full-service airlines levy a fuel surcharge of Rs 2,400 for sectors less than 750 km and Rs 3,100 for longer flights. Low-cost airlines charge Rs 2,250 and Rs 2,900 as fuel surcharge for short- and long-haul flights respectively.

‘neutralised benefits’
But, despite the Government announcements, the industry held out no promises of cutting fares or reducing surcharges immediately.

“Despite the drop in fuel prices, the cost equation remains largely the same as earlier. Oil prices are down but dollar-linked costs have shot through the roof. The depreciation of the rupee by 20 per cent has neutralised many benefits that airlines may have reaped,” a senior airline official said.

Airlines have to pay in foreign exchange for the aircraft that they either lease or buy and to the foreign cockpit crew and senior airline staff that they hire.

The industry feels that the real benefit to them and, therefore, to passengers, will be available when ‘declared good’ status is given to ATF. This will help airlines uplift ATF at a fixed sales tax rate of 4 per cent throughout the country. At the moment, sales tax varies from 4 to 29 per cent.

The Government has already come forward to help the domestic airlines. Late last month, it was decided that the sector will get six months to clear more than Rs 2,900 crore previously owed to the domestic oil companies. In addition, domestic airlines will get a 90-day grace period for clearing their current fuel bill.

Source: TheHinduBusinessLine