Domestic airlines are paying 50 per cent more for aviation turbine fuel here than the price in West Asian and the European markets. Even flights on foreign routes pay more when they refill in India.
ATF accounts for nearly half of an Indian carrier’s operating cost, compared to 20-25 per cent globally. Ad valorem taxes of 20-29 per cent are making domestic airlines shell out nearly 52 per cent more for the fuel compared to the average global price. While international airlines are exempt from state-level taxes, they pay nearly 16 per cent more than the global average.
The domestic ATF price has moved up 40 per cent in a year, compared to an increase of 30 per cent globally. “With the increase in price, the component of tax also keeps rising, rendering the fuel even costlier,” said an aviation industry expert. While there is no basic customs duty on ATF, it attracts eight per cent countervailing duty and eight per cent basic Cenvat.
Following dismantling of the Administered Price Mechanism from April 2001, the price of ATF in India is based on international import parity prices, and directly linked to the benchmark of Platt’s publication of FOB Arabian Gulf ATF prices and do not relate to the actual cost of producing it in India. ATF prices for domestic operations include freight charges from the Gulf to India, domestic transportation and other charges, in addition to the margins for oil companies.
Therefore, domestic ATF prices are significantly higher than international benchmarks. The impact has been adverse on the financial health of India’s airlines.
“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,” said an industry official.
A reduction in the cost of ATF cost has a significant impact on airline balance sheets. With the ATF price and taxation structure resulting in a huge burden on bottom lines, these make airlines in India unattractive for equity capital and debt financing.
Business Standard