Airlines question fuel price hike, cite drop in crude rates

Seek Rs. 2,500-crore refund from oil marketing firms

Four major domestic airlines have escalated their protest over the 12 per cent increase in aviation turbine fuel (ATF) prices effected this month, refusing to pay the revised prices and seeking a Rs. 2,500-crore refund from oil marketing companies for failing to pass on the benefits of falling crude oil prices since 2014.

“Without prejudice…kindly note that the payments that are being currently made are to be treated as ‘under protest’ and thus our member airlines reserve the right to pay as per the rates prevailing in February 2016,” said a joint letter to oil companies signed by airline promoters Nusli Wadia (GoAir), Naresh Goyal (Jet Airways), Ajay Singh (SpiceJet) and Rahul Bhatia (Indigo).

The joint letter to Hindustan Petroleum Corporation chairperson and managing director Nishi Vasudeva, Indian Oil Corporation chairman B. Ashok and Bharat Petroleum Corporation Limited CMD S. Vardarajan was sent on March 16 on behalf of the Federation of Indian Airlines (FIA).

“FIA seeks your co-operation and support to allow our member airlines to withhold payment of increased amounts due to the recent increase in ATF prices by 12 per cent, until the matter is conclusively determined in a transparent manner,” the promoters said in their letter seen by The Hindu.

The airlines have urged oil marketing companies to disclose the “ambiguous” and opaque price discovery mechanism they used for setting ATF prices. They argued that air fares have remained high as oil companies had not passed on the benefits of the continuous fall in global crude oil prices since 2014. “… As a result, you profited… wherein the airlines are still struggling,” they alleged, and sought a Rs. 2,500-crore refund.

Aviation fuel costs account for over 40 per cent of an airline’s cost of operations, and hence an increase or decrease in ATF prices has an impact on air fares.

The airlines argued that average crude prices declined 69 per cent from April 2014 to February 2016, and during this period, the exchange rate went up by 12.7 per cent.

It said the ATF prices should have been 25 per cent lower than Rs. 34,284 a kilolitre (in Mumbai) announced in February 2016.

“The difference of Rs. 8,650 a kilolitre has been pocketed by oil companies as it is a case of profiteering. According to our estimates, the annual ATF bill for airlines is around Rs. 10,000 crore,” the promoters said, and this translated to a higher cost of Rs. 300 a ticket for passengers.

Recent revision

On March 1, the ATF prices were revised up by 12 per cent to Rs. 38,425 a kilolitre. While airlines had threatened to move the Competition Commission of India at that time, the government said five per cent of the increase could be accounted for by a rise in ATF input costs and the rest was attributable to an increase in excise duty in the Union Budget.

While the airlines said they were ready to pay the increase in excise duty on ATF prices, the letter demanded “a quick rollback in the unreasonable prices” effective from March and a reduction in the base price of the fuel on which duties are calculated, stressing that ATF is a “de-regulated product.”

“ATF in India is subject to a multiplicity of taxes and fees, the result of which is that domestic carriers pay up to 50 per cent more for fuel than in Dubai or Singapore… It is further imperative that oil companies realise that the benefits of a lower-cost environment will stimulate business and tourism,” the promoters said.

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Printable version | Apr 1, 2020 1:56:32 AM |

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