Airlines set to raise fares after India’s oil firms hike ATF prices

Airlines are set to raise domestic as well as international fares following the huge hike in the prices of aviation turbine fuel (ATF) announced by India’s state-run oil companies. The state-owned oil marketing companies raised the prices of aviation turbine fuel prices for domestic carriers by around 20% and for international carriers by about 12% with effect from June 1, 2008, following the sharp rise of global crude oil prices.

Analysts say that airlines are set to pass on 40% of the increased cost to the consumers since aviation turbine fuel accounts for over 40% of their operating costs.

This is the fourth successive hike in the prices of aviation turbine fuel prices since February 2007. India’s state-run fuel retailers Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum revise prices of jet fuel once every month in accordance with the international price trend.

Unlike domestic flights that at present have two fixed levels of surcharge, each international sector has a different cess.

The media quoted sources in the airlines as saying that the increased cost of ATF would considerably upset their operations and cited the instances of many international airlines limiting their operations to cut operating costs.

According to media reports, Singapore Airlines had recently increased surcharge. A spokesman of Singapore Airlines was quoted as saying: “On India-Singapore sector, the surcharge has gone up from $80 to $95 per ticket. Flying to Australia via Singapore now has a surcharge of $190, up from earlier $160. Flying to the United States through Singapore now has a surcharge of $245, up from the earlier $210.”

Indian carriers have reportedly complained that the prices of aviation turbine fuel prices are among the highest in the world because of high duties and taxes. “In the past few months, crude price has been rising constantly but the government has not hiked petrol or diesel prices so far due to political considerations while ATF has been becoming dearer constantly.”

A senior executive of Air-India commented on the hike in ATF prices: “We will have to study the situation in totality and take a call. Jet fuel prices have been on the rise globally over the past couple of months. All airlines will be under pressure to take steps to meet this situation.”

In line with the soaring international oil prices, Indian Oil Corporation, India’s biggest oil retailer, raised the price of ATF charged from airplanes to Rs 69,227.08 a kilolitre in Delhi from the midnight of May 31, 2008. Until May 31, ATF was priced at Rs 58,387.92 a kilolitre in Delhi.

In Mumbai, where India’s busiest airport is located, prices of aviation turbine fuel have gone up to Rs 76,625.68 a kilolitre from Rs 64,824.82 a kilolitre.