The Centre is considering reviving an aviation turbine fuel (ATF) price stabilisation fund as the prolonged West Asia crisis drives up fuel costs and adds pressure on airline finances, according to a report by PTI carried by The Times of India. Civil Aviation Minister K Rammohan Naidu said the government was discussing the issue with airlines and oil marketing companies (OMCs).
“One of the most important things is how the West Asia crisis is putting a big burden on ATF prices. We are in discussions with airlines and OMCs,” Naidu said on the sidelines of a conference in New Delhi on Tuesday.
A senior government official said the Centre was examining whether to bring back the earlier stabilisation mechanism. Specific details of the proposed fund or its possible financing structure were not immediately available.
The government had introduced a similar support mechanism in June. The Union Cabinet approved one-time budgetary support of up to Rs 10,000 crore for OMCs to stabilise ATF prices and support domestic airlines. Airlines, however, were not keen to use the facility, and the scheme subsequently lapsed.
The renewed discussions come as ATF prices have risen sharply in recent months. Prices increased by Rs 5 per litre in August and by another Rs 6.28 per litre in September, taking the Delhi rate to Rs 121.28 per litre. On October 1, prices rose by a further Rs 16 per litre to around Rs 137 per litre, according to an earlier Times of India report.
Fuel is one of the largest operating expenses for airlines. ATF typically accounts for around 30-40 per cent of airline operating costs, while the government has said the figure can reach about 40 per cent. Changes in jet fuel prices therefore affect airline margins, ticket prices and the viability of routes.
IndiGo, the country’s largest airline, announced higher fuel charges for domestic and international flights from October 6, citing continuing increases and volatility in ATF prices. The airline said the latest month-on-month rise in fuel prices was more than 14 per cent and had pushed ATF costs close to their highest levels in the past decade.
The airline had also reduced flight frequencies on some routes in September. An official cited higher ATF costs linked to the West Asia crisis as one of the factors behind the capacity reductions.
Airlines are also seeking a broader review of the domestic jet fuel pricing system. The Federation of Indian Airlines, which represents Air India, IndiGo and SpiceJet, wrote to the civil aviation ministry last month asking that ATF be priced using the actual cost of fuel plus a reasonable margin rather than being linked to international benchmark pricing.
The federation said higher fuel prices, geopolitical disruptions and rupee depreciation were putting pressure on airline cash flows and viability. Airlines have separately sought measures involving the pricing mechanism, taxes and refinery margins.
OMCs revise ATF prices on the first day of every month based on international benchmark prices and foreign exchange rates. Prices also differ between states because of local taxes. The government’s next step will determine whether the proposed stabilisation mechanism becomes a formal support measure and how it would address the concerns raised by airlines and fuel suppliers.
