Airlines protest fuel price hike, warn of CCI action

ATF_2679358fAviation fuel costs account for over 40 per cent of an airline’s cost of operations, and hence so could impact air fares. 

Federation of Indian Airlines seeks an independent regulator for Aviation Turbine Fuel (ATF) pricing.

Leading domestic airlines demanded a rollback of a sudden 12 per cent hike in aviation turbine fuel (ATF) prices announced by oil companies on Tuesday and warned that they would be compelled to approach the Competition Commission of India (CCI) on such “non-transparent” changes.

Aviation fuel costs account for over 40 per cent of an airline’s cost of operations, and hence could impact air fares. The government said that part of the hike in ATF prices was due to an increase in excise duty on aviation fuel, announced in the Union Budget.

“Out of the total 11.5 per cent hike, five per cent increase is on account of an increase in the input costs of ATF and the rest 6.5 per cent is on account of excise duty (hike on ATF),” Civil Aviation Secretary RN Choubey told The Hindu over telephone.

The civil aviation secretary said that despite the duty hike on aviation fuel, it is “significantly cheaper” than petrol and diesel at present. But the Federation of Indian Airlines (FIA), which represents key airlines IndiGo, SpiceJet, Jet Airways and GoAir, demanded a rollback in the hike and sought the constitution of an independent regulator for ATF pricing.

“In March 2016, FIA members have been informed of a 12 per cent increase in prices without any explanation. No response has been received from oil companies regarding this price revision and oil pricing continues to be non-transparent, to the detriment of consumers and citizens,” the FIA said in a letter to Oil Minister Dharmendra Pradhan, Civil Aviation Minister Ashok Gajapathi Raju and Finance Minister Arun Jaitley. Civil Aviation Minister Ashok Gajapathi Raju said a 35 per cent drop in aviation fuel had helped airlines to offer over 18 per cent lower passenger fares in 2015.

An analysis of ticket pricing in 23 centres conducted during October-December last year showed that air fares were 18.5 per cent lower as compared to the same period last year, Mr. Raju said.

Aviation experts had said that this hike in excise duty will lead to a four-five per cent increase in raw material costs for airlines.

“The increase on account of excise duty is only 6.5 per cent and not more than that and this is something which airlines can very easily absorb (after the dip in prices last year),” aviation secretary Mr Choubey had earlier said in a press conference.

The civil aviation secretary, however, told this newspaper that the airlines will likely pass on some hike in aviation fuel announced by oil companies on to customers. Making a case for revising aviation fuels, FIA said the average price per barrel declined by 22 per cent in February compared to the previous month and during this period the exchange rate went up by one per cent.

‘Irrational price revision’

Terming it as an “irrational price revision”, the FIA demanded setting up an independent price regulator and said, if “non-transparent price” increases continue, the body will be “forced to refer this matter to the Competition Commission of India.”

Regional airports are exempt from the incidence of the higher excise duty of 14 per cent announced by the finance minister in the Budget for 2016-17.

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