Around 50% of costs borne on ATF, says IndiGo

Close to 50 per cent of IndiGo’s expenses is on buying aviation turbine fuel (ATF), the low-cost carrier has disclosed in a document submitted to the Securities and Exchange Board of India(Sebi).

The dip in international oil prices has had a marginal effect in the last fiscal as it dropped below 50 per cent for the first time after three consecutive years, during which, the fuel expenses were above the half-way mark.

IndiGo’s disclosure in the Draft Red Herring Prospectus seeking Sebi’s nod for its Initial Public Offer (IPO) is in tune with the airline operators’ claim. All airlines have been urging the Centre to take steps to bring down ATF prices as it amounts to almost half of their expenses. The Centre, on its part, has been urging states to reduce tax on ATF that would result in reduction in prices.

According to the Draft Red Herring Prospectus submitted by IndiGo seeking Sebi’s nod for its IPO, the cost of ATF has fluctuated significantly in recent years. The money spent on fuel was 42 per cent (of total expenses of Rs 2,171.4 crore) in 2010-11, and it rose to 41.17 per cent (Rs 3,229.4 crore expense) in 2011-12. Owing to the rising international prices, the expenses on fuel rose to 51 per cent (of Rs 5,633.7 crore) in FY13, but fell to 50.3 per cent (of Rs 8,452.91 crore) FY14.

However, in 2014-15 (till December), the fuel expenses fell to 48.4 per cent of the total expenses of Rs 9,399.1 crore. “The cost of ATF cannot be predicted with any degree of certainty,” IndiGo said, adding that it has taken steps to reduce its fuel consumption like using sharklet-equipped A320 aircraft from January 2013. As a result of various measures, IndiGo said, it has been able to reduce its fuel consumption per block hour by three per cent, from fiscal 2010 to fiscal 2015. “As such, our operating results are significantly impacted by changes in the availability and the cost of aircraft fuel,” it said.

It cautioned that as delivery of imported aircraft fuel is made free on board, they are “also subject to risks of contamination and pilferage”. “Inadequate supplies of aircraft fuel or disruption in supply may result in increases in the cost of aircraft fuel, or could cause significant disruptions to our business,” it added.

IndiGo said the increase in the number of low-cost carriers combined with macroeconomic factors such as relatively low per capita income, and price-sensitive consumers, have led such operators to dominate India’s air travel market.