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Jet fuel cheaper, but no cut in air fares

By BS Reporter in New Delhi
December 16, 2008 09:28 IST
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As a result of crude oil prices falling to a four-year low of around $40 a barrel last fortnight, public sector oil companies today cut aviation turbine fuel (ATF) prices by 11 per cent. The rates will be effective this fortnight. The current rates were set on December 1. This is the seventh consecutive cut in ATF prices since September.

However, after a cut in fuel surcharge announced less than a fortnight ago, Indian carriers are not willing to reduce fares.

"Air India had taken the lead in announcing a cut in fuel surcharge less than a fortnight ago. In that cut we had taken into consideration the decrease in fuel prices for the entire month of December. Having said that, price cut is a subject that we keep monitoring," said a spokesperson of National Aviation Company of India Ltd (Nacil), which owns national carrier Air India.

After Air India, which announced 14.5 per cent cut in fuel surcharge on December 1, Jet Airways, Kingfisher, SpiceJet and IndiGo had announced similar cuts, bringing down overall ticket prices by 9 per cent. Indian carriers have cut average ticket prices by 23-28 per cent since September.

The spokesperson said 70 per cent of the airline's costs were in dollars and the weakening of the rupee in the last few months would have taken away around 20 per cent of the benefit of the recent fall in crude oil prices.

Last fortnight, however, the rupee appreciated by 4.5 per cent, which would have had a positive impact in the determination of crude oil prices.

A Kingfisher Airlines spokesperson said they "will evaluate the impact of this announcement and take a view".

Low-cost carrier SpiceJet CEO Sanjay Aggarwal said there would not be a further price cut at least for now. "We are not going for another price cut until ATF is given a declared goods status, unless there are other competitive reasons," he said.

The airline industry has been lobbying the government to give ATF the status of a declared good so that the state-level levies on the fuel do not exceed 4 per cent. Currently, sales tax on ATF can be as high as 25 per cent.

"We are evaluating the impact of the cut in jet fuel prices," said a Kingfisher Airline spokesperson.

Considering that ATF prices account for almost half the cost of an airline, 53 per cent decline in ATF prices since August would have led to around 25 per cent decrease in their total costs.

However, the deficits accumulated before that, when ATF prices increased by around 57 per cent from January to August, would have negated most of these benefits.

ATF prices from January 1 to August 31 rose around 57 per cent. ATF prices from September 1 to December 31 have decreased by 50-54 per cent. The effective cut in the prices of the fuel since January stands at around 28 per cent.

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BS Reporter in New Delhi
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