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No respite for airlines despite customs duty cut on oil
Published on Thu, Jun 05, 2008 at 17:08   |  Updated at Fri, Jun 06, 2008 at 12:56  |  Source : CNBC-TV18

By Swati Khandelwal, CNBC-TV18

 


The Indian Oil Corporation or IOC has said that PSU oil companies have cut jet fuel prices by Rs 3239/kl on cut in customs duty, reports Newswire18.

 

It does bring some relief to the airline industry as there will less the burden of fuel on them but the airlines, CNBC-TV18 understands, are not ready and it is unlikely that they will bring the costs of on the tickets or fares down as the ATF (Air Turbine Fuel) price rise was 18.6% and the cut has been only 4.3%. Also, the State sales tax on ATF which is hovering at 50% in most states, even if that comes down, which the government is trying to convince all state governments - if it comes down to 4% or a 12.5%, even then the airlines say that they may not be able to bring the cost down on the tickets.   

 

Wolfgang Prock-Schauer, CEO, Jet Airways: You have to see, this industry made a loss of USD 1 billion in the last financial year. Now we have increased another USD 2 billion on cost, so there is the real danger that seems to see a USD 2 billion loss this financial year. So, if we get some relief, it will help closing the gap. But still there is lot of work to be done on the cost optimising our root network as talking about the industry perspective. To come to a break-even situation now, the question of lowering the prices is not on the table on my point of view.”

 

Even Kingfisher and SpiceJet – CNBC-TV18 spoke to both these airlines; they say that it is unlikely. In fact, what these airlines say is that this sort of a cut in ATF could perhaps help the consumers, as there will not be a further price hike in tickets. But there is nothing for now in terms of cutting on the prices of tickets.

 

Oil manufacturing companies have announced a cut in jet fuel prices. Will that mean a rollback of the recent hike in airfares? It is unlikely that airlines will reduce fares any time soon.

 

A drop in jet fuel prices is good news for the airline industry, you would think. But airline operators don't think the cut of Rs 3,239 per kilolitre in ATF prices by oil manufacturing companies will provide them much respite.

 

That is because the aviation industry is already gearing up to post losses of USD 2 billion in this financial year. So, a 4.3% cut in ATF prices is far from substantial to help them bridge the gap or pass on the benefit to passengers.

 

“There is a lot of work to be done from an industry situation. So, there is no question of lowering prices. That is not on the table in my point of view,” said Wolfgang Prock-Schauer, CEO, Jet Airways.

 

“Compared to a 60% hike in ATF prices this year versus a 4% cut is nothing much. So, we will not cut fares now, maybe in July if there is any further reduction we may consider,’ said Partha Sarthi Basu, CFO, SpiceJet.

 

Earlier this week all major airlines passed on the entire 18.5% increase in ATF prices to their passengers. Airlines increased fuel surcharge for short haul distances up to 750 km by Rs 300 and by Rs 550 for distances beyond 750 km.

 

Currently, airlines are lobbying for a cut in the 30% sales tax levied on ATF in most states. While that may take a while, the industry is hopeful that crude continues to trend downwards. Only then will both passengers and airlines get some respite.

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