ATF prices: 'Indian airline industry on verge of stopping operations,' says FIA; seeks government intervention

NEW DELHI: "The airline Industry in India is under extreme stress and on the verge of closing down or stopping operations.” This dire warning has been issued by the Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, in an “urgent” SOS sent to the government, seeking the latter’s “urgent intervention” in aviation turbine fuel (ATF) pricing.

With a number of crucial assembly elections underway, the government had for April capped the hike in base price of ATF for domestic flights to 25 per cent, while the same for international flights was hiked by over 100 per cent. Now the monthly revision is going to happen later this week for May.

Airlines have requested rational ATF pricing, a temporary suspension of 11 per cent excise on ATF for domestic operations and a reduction of VAT rates in key states. “India’s largest aviation hub — Delhi — has the second-highest VAT in India at 25 per cent. Tamil Nadu I highest at 29 per cent. Rates at other major aviation hubs of Mumbai, Bangalore, Hyderabad, and Kolkata range between 16 per cent and 20 per cent. These six cities cover more than 50 per cent of the airline operations within India. To ensure the uninterrupted operation of airlines within India, FIA requests urgent intervention to review the ATF cost challenges.”

“FIA seeks urgent intervention in the current ATF ad hoc pricing, which is creating a severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable…. The dire condition of the aviation sector has been exacerbated by the West Asia war and the exorbitant increase in the price of ATF,” FIA letter to aviation secretary Samir Sinha sent last week says.

ATF accounted for 30-40 per cent of airlines' costs earlier, and the percentage band increased to 55-60 per cent after the April hike,” creating completely inoperable conditions”. The rupee's crash had added to their cost woes.

“Airlines are in a very difficult, precarious and challenging situation. Airlines have been somehow managing operations till date despite rising cost and additional operation expenses due to airspace closure… 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,” the FIA letter adds.

“There is a (price) control mechanism for other fuels like diesel and petrol, which is missing for ATF and the price of ATF is significantly high as compared to its production cost. ATF is just 4 per cent of (India’s) refinery production. Of the 4 per cent ATF produced in India, only 30 per cent of ATF is consumed by its domestic airlines and 20 per cent by international carriers and surplus of 50 per cent on ATF is being exported,” it adds.

High ATF prices “will result in unsurmountable losses for airline and lead to grounding of aircraft resulting in cancellation of flights.”
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