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ATF hike in offing

21 Nov 2007; Economic Times

NEW DELHI: Cost of air travel within the country is all set to go up once again as airlines are bracing up for another hike in aviation turbine fuel (ATF) prices on December 1. The two options under consideration are a hike in basic fare or another increase in fuel surcharge which is already hovering at Rs1,350. Either way, cost of air travel would increase by Rs.200 or at least Rs150 per sector for economy class travel between metro cities.

The actual increase could be far higher as discounted fares also being reduced to the bare minimum. Airline sources said the current apprehension is ATF price would go up by 10% at the beginning of December and efforts by civil aviation minister Praful Patel and petroleum minister Murli Deora have failed to goad public sector oil companies to cut fuel prices. “Right now we are in the middle of the peak season.

Also, ATF prices are at a peak. Therefore, hike in fuel prices would be passed on to passengers," an airline veteran said on condition of anonymity. Most airlines are in favour of another hike in fuel surcharge as it is simpler to implement and chances of undercutting are minimum, said another sources familiar with the development. Hike in basic fares is more complicated and it may not suit the current strategy of the industry. Ever since ATF prices starting hitting new highs this year, airlines have been effecting identical fare hikes through fuel surcharge.

They co-ordinate with each other to effect the price hikes on the same day. Oil companies, despite efforts by the civil aviation and petroleum ministers, have insisted that they cannot do much and airlines should rather approach the finance ministry for duty cuts and state governments for reduction in sales tax.

While agreeing to consider discounts, oil companies have not diluted their effort to gain as much as possible for ATF sales. Air India floated a large tender recently only to find its hopes of a steep discount quashed.

Under such circumstances, there is no hope for relief on ATF prices and a hike in December is certain, the sources said. Representatives of major airlines like Air India, Jet Airways, Kingfisher, SpiecJet and IndiGo are expected to informally consult each other on the issue. While private players are in favour of a hike of around Rs.200, it is understood that Air India wants to keep such hikes to the minimum. Therefore, the consensus could finally settled at Rs.150 hike in fuel surcharge.

ATF accounts for nearly 40% of the input cost of airlines and the unrelenting spiral in curde prices is giving sleepless nights to domestic carriers. The Federation of Indian Airlines (FIA) has been drawing the government’s attention to ATF prices being nearly 70% to 95% higher in India in the case of fuel uplifted for domestic operations. Even in the case of ATF bought for international operations, Indian carriers pay 30% more.

Airlines are hoping for a profitable third quarter as demand is high during October-December period. As demand slows down by the middle of January, they bank of third quarter profits to balance the losses suffered in the last quarter. Therefore, the ATF situation is being watched with serious concern.