Indian carriers rejoice as crude prices dive

Domestic airlines could save $400 million, says CAPA

The plummeting international crude prices is adding cheers to the troubled Indian aviation industry with experts pegging savings for domestic airlines at around $400 million this year on account of drop in jet fuel charges.

The government on Sunday slashed Air Turbine Fuel (ATF) prices by a steep 11.3 per cent, resulting in jet fuel costing less than diesel.

An estimate by aviation think tank Centre for Asia Pacific Aviation (CAPA), before the latest cut showed that domestic airlines could save $400 million though the oil companies are not passing on the entire benefit to the operators. “The sharp decline in fuel prices is a major source of relief in a market where ATF is subject to some of the highest taxes in the world,” CAPA said.

Great relief, tweets Sanjiv

The reduction in jet fuel prices is greeted with enthusiasm by the industry but they want the benefit to be passed on to the players entirely. Sanjiv Kapoor, Chief Operating Officer of financially-troubled SpiceJet, said the ATF prices were cut further by 11 per cent but the prices are still 50 per cent higher than 2009. However, he tweeted, it is a “great relief for airlines”.

“Fuel prices have plummeted. That is a big bonus to airlines in India though we wish the savings were passed on to the players. Fuel prices have decreased by around 50 per cent between now and last June, but airlines here have only got a 26 per cent benefit,” Phee Teik Yeoh, Chief Executive Officer of Vistara, told Deccan Herald recently.

On the other hand, passengers wonder why the airlines are not slashing fares when the fuel prices have decreased and a forum for passengers have already approached the Civil Aviation Ministry seeking its intervention.

Airlines, on their part, argue that they are victims of high taxes and not in a position to pass on the benefits.

The CAPA said that ATF is subjected to a multiplicity of taxes in India and the end result is that domestic carriers pay up to 50 per cent more for fuel than in Dubai or Singapore.

The fuel charges account for half of expenditure for Indian carriers and the decline in oil prices is “perhaps the greatest single reason” for the improved sentiment in the industry.
The decrease in fuel prices also reflected in the Bombay Stock Exchange as the shares of SpiceJet and Jet Airways registered a rise in prices. SpiceJet shares ended with a gain of 3.60 per cent at Rs 23 while during the day, it soared to Rs 23.70.
Jet Airways stock rose by 2.36 per cent to close at Rs 526.90.

In the intra-day trade, it had gained 5.58 per cent to Rs 543.50 – its 52-week high.

CHEAPER BY FAR

Petrol                            Diesel
in Delhi                   in Delhi (IN RS)   
58.91 per ltr              51.52 per ltr   
ATF in Delhi                46.51 per ltr
(As of Feb 2, 2015)

SLIP SLIDING AWAY

Oct 1, 2014    RS 67,525.63   
Nov 1, 2014    RS 62,537.93
Dec 1, 2014    RS 59,943.44   
Jan 1, 2015    RS 52,422.92
Feb 1, 2015    RS 46,513.02
(ATF kilolitre prices in Delhi)