NEW DELHI: After dealing with months of escalating ATF (Aviation Turbine Fuel or jet fuel) prices, India’s aviation industry got some relief on Saturday, when the prices were slashed by 11 per cent. In December, a kilo litre (kl) of jet fuel will cost Rs 68,050.97 in New Delhi, down from Rs 76,380 last month.
Though the cut — sharpest in last two years —has brought the fuel prices to July 2018 level, it still is significantly higher than the year-ago period. In December 2017, the same was priced at 57,349 kl.
“It will have some positive impact on the industry, but not very dramatic. If the government withdraws 5 per cent customs duty on the fuel, then we are looking at a substantial relief,” said Mark Martin, founder and CEO of Dubai-based Martin Consulting. The aviation ministry, on the other hand, has been asking for ATF to be brought under GST to rationalise different tax rates of different states.
Other analysts said that cut will allow players to offer seats at competitive prices, but it is unlikely to improve their margins.
“Leading players (especially IndiGo), are significantly increasing their fleet size and are under constant pressure to fill in seats. As of now, filling in seats is more important. So, expect prices to remain at the current level and no significant margin improvement of players,” said an aviation analyst, who wished not to be named.
Martin said that it is a wait-and-watch period as the rupee value against the US dollar — another major factor that impacts profitability of carriers — might take three-to-six months to reach at the Rs 67 level. While the average ATF prices have witnessed a YoY rise of approximately 35 per cent during April-November 2018, average rupee fell by 7.8 per cent against the US dollar in this period.
Ratings agency ICRA too said that Indian aviation industry is severely mauled by rising ATF prices and depreciation of rupee value. “The industry’s financial health has nosedived, with the three listed airlines having reported a combined net loss of Rs 3,640 crore in H1FY19. That means the three listed airlines together have lost approximately Rs 20 crore per day during H1FY19,” said Kinjal Shah, vice-president and co-head, Corporate Sector Ratings, ICRA.
India’s largest airline IndiGo posted Rs 652.13 crore loss in the September quarter, while Jet Airways is struggling to make monthly payments. ICRA believes that domestic airlines will need Rs 35,000 crore capital infusion in the next 3-4 years to stay afloat.