Air India, IndiGo, SpiceJet seek ATF price relief; say airline industry on verge of 'stopping operations'

With an unprecedented rise in jet fuel prices and exorbitant crack/differential between crude and ATF, the federation said the operation of airlines is being challenged in totality.

New Delhi: Warning that the country's aviation industry is under "extreme stress and on the verge of closing down or of stopping its operations", the Federation of Indian Airlines (FIA) has written to the government seeking revision of ATF pricing and temporary suspension of excise duty on jet fuel for domestic operations.

The FIA, which represents Air India, IndiGo and SpiceJet, said the "dire condition" of the aviation industry has also been exacerbated by the West Asia crisis, which has led to air space closures leading to additional expenses.

Seeking urgent intervention on the current Aviation Turbine Fuel (ATF) ad hoc pricing, it said this is "creating severe imbalance" in domestic and international operations and rendering airline networks unviable and unsustainable.

"The airline Industry in India is under extreme stress and is on the verge of closing down or of stopping its operations. The dire condition of the aviation sector has been exacerbated by the West Asia war and the exorbitant increase in the price of ATF," the letter, sent on Sunday, said.

It said any ad hoc pricing (domestic vs international) and/or irrational increase in the price of ATF will result in "insurmountable losses" for airlines and will lead to grounding of aircraft, resulting in cancellation of flights. "In order to survive, sustain and continue operation, we request your urgent intervention for immediate and meaningful financial support to tide over the current situation," it said.

The letter said the government had last month, to prevent the collapse of the sector, limited the increase of ATF to Rs 15 per litre for domestic operations, but it was increased by Rs 73 per litre for international operations, which "practically makes both international and domestic operations completely unviable and leading to significant losses".

"Given the current circumstance, in the event, the OMCs decided to extend the pricing based on production cost, it will only be for the domestic airlines with 70 per cent of fuel still being priced on global benchmark. The impact, if any, may be set aside by the export opportunities and international carriers...FIA requests that the crack band agreed earlier between the OMCs and airlines with the support of government be allowed to be continued," it said.

Seeking temporary deferment of excise duty on ATF, the letter said, "With the abnormal increase in ATF prices from the pre-crisis period, adding rupee depreciation to the increased prices, the 11 per cent excise duty also increases manifold for the airlines and adds to the ATF price as a big impact on airlines."

"Considering the extraordinary global circumstances and the fragile financial condition of the aviation sector, keeping in mind already burdened with additional cost due to neighbouring country(s) airspace closure, rupee depreciation, FIA requests government to kindly consider temporarily suspending the excise duty on ATF for domestic operations," it added.

Arguing for reduction of VAT in key states, it said the country's largest aviation hub Delhi has second highest VAT in India -- 25 per cent, the highest being Tamil Nadu at 29 per cent, while in other major aviation cities like Mumbai, Bengaluru, Hyderabad and Kolkata, it ranges between 16-20 per cent. These six cities cover more than 50per cent of airline operations within India, it added.