– A high cost environment in India: Fuel, wages, airport charges
• Airlines are still adding capacity with new planes
– 150 aircrafts in 2002 to 300 in 2007. Expected to further
double by 2010
ATF Contributes to 40% of the operating cost of airlines
Priced 65% higher in India on an average, compared to international benchmarks
– An FIA estimate indicates that a reduction in ATF price by 60% (to bring it closer to international benchmarks) has an impact of lowering airline operational losses by 25%
• High ATF charges not only a domestic airline issue
– IATA deeply concerned
– Hurts India’s prospects of being even a regional aviation hub
• A reduction of even Rs 1000 / kl translates to a saving of Rs 500 crore for the sector
In fact, there has been a 20% drop in the weekly flight schedule - from 10,922 flights a week in March 2008 to 8,778 (15 th sept 08)
Even the passenger growth witnessed a decline by 12% July 2008 as compared to July 2007.
Domestic airlines are facing an estimated loss of $2 billion in fiscal 2009
The ATF price in India is Rs 37,800 per kilolitre as against the international price of Rs 21,800 per kilolitre, which is about 73% higher (at April'07 prices).
The high cost of ATF coupled with the high airport charges in India have adversely affected Indian airports' prospects of emerging as global / regional aviation hubs.
prices of ATF in India based on the "International Import Parity Prices", directly linked to benchmark of Platt's publication of FOB Arabian Gulf ATF prices (AG).
The industry's growth rate has been 35% to 40% more reasonable levels like 10% to 15% increase in sector
sees three major airlines emerging from the rubble and Merged of
Air India-Indian Airways
Kingfisher Airlines- Spice Jet
Factors which contribute to high cost of ATF
• Import Parity Pricing mechanism
• State Sales Taxes
• Customs & Excise Duties
• Throughput Fees (used as a criterion to decide winners in the recent for setting up fuel facilities at selected airports )
• Lack of common distribution infrastructure
REALITY ON ATF
Oil marketing companies on 14 TH September announced 16% reduction in price of ATF
Airlines refused to pass on this benefit to consumers by lowering fares
A reduction of even Rs 1000 / kl translates to a saving of Rs 500 crore for the sector
The overall impact of the high oil prices on the Indian economy is also restrained:
comfortable balance of payment position, the large foreign exchange reserves and the access to international capital.
Share of oil in total energy consumption went up slowly to 24.5% in the 2000 and it is expected to stabilize close to that level till 2011-12.
CONSUMPTION OF ATF
The government has long treated flying as a luxury and the taxes on ATF have reflected
If all the levies (excluding company margins and mark-ups) are put together, the total is nearly 35% of the final sale price
ATF today costs around $1 per liter around the world, and marginally less in places like Dubai and Singapore.
This ranges from 4% in Andhra Pradesh to 30% in Gujarat.
Levies and Losses
Customs duty on ATF for domestic operations should be reduced
Excise duty on ATF should be made 4%
ATF should be given "declared goods" status, thereby attracting a uniform 4% sales tax across India
An Excise Duty of 8.24% (including cess) is levied on ATF
Fuel price rise will not impact domestic air travel growth
Increasing price of ATF would not hurt the industry, it could never be the reason for an Airline to close down.
Domestic Airline will be adversely influenced by epidemic outbreaks, economic recession, terrorism, shift in policy, regulations and competitive market, but not by rise in oil prices
MEASURES TO IMPROVE THE AIRLINE INDUSTRY
New fuel-efficient aircraft and Next Gen air traffic control system-enabled flight procedures can lower fuel bills by 20-30%
Require large capital outlays and massive upgrades to the ATC system.
Expects airlines to invest $12-18 billion of their own money to take advantage of Next Gen ("next generation" biofuels from grasses and trees because ethanol and biodiesel from grains and beans are blamed for helping to boost food prices. )
The airlines which will survive this period of high oil prices are those with:
Fuel efficient aircraft,
Substantial cash balances
Low net debt and
Capable management who can increase efficiency
Airlines are also looking at other options for sourcing ATF. which will take the fuel out of the state sales tax net
To set up an “early warning mechanism” to forewarn them of low yields routes as well as identify potentially high traffic routes that may be seasonal
KPMG. says that “ATF price hikes can hurt the industry, but not kill it”
."The future for the industry is positive and bright", despite the so called 'turbulence'
Oil companies are critical stake-holders In India’s aviation growth. The oil companies thus have a shared responsibility towards ensuring that the exponential growth in aviation is sustained.