Benefits of ATF price reduction due to new pricing mechanism will be passed on to customers: Airline officials

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Senior airline officials in India are looking forward to the new pricing mechanism for aviation turbine fuel (ATF) in India, after dealing with nearly two years of very high jet fuel prices.

"The new ATF pricing mechanism will not only help airlines by lower the fuel costs for airlines, but customers will also benefit from lower ticket prices once the mechanism comes into effect," a senior official from a domestic airline told Moneycontrol.

The official added that most airlines in India are in talks with oil marketing companies including Bharat Petroleum Corporation, Hindustan Petroleum Corporation, and Indian Oil Corporation and will sign supply agreements with OMCs by October.

Another senior official at a domestic airline said that prices of metro routes are likely to fall significantly once the new mechanism for supplying jet fuel comes into play.

"Initial estimates show that ATF prices will likely be 10 percent lower than current levels, which will help airlines offer lower ticket prices," the second official said.

He added that ATF prices are likely to be lower when supplied in metro cities like Delhi and Mumbai, which will translate into lower ticket prices on those routes.

As part of the new proposed pricing policy, OMCs in India are expected to shift to the MOPAG (Mean of Platts Arab Gulf)-based pricing system instead of the prevailing dual pricing mechanism to determine ATF prices.

The new mechanism is also expected to help airlines predict ATF price movement based on international prices and help them be better prepared in case global crude prices rise.

Fuel costs now account for 50 percent of overall airline expenses for domestic airlines in India. Airlines in India had to find a way around rising ATF prices even as the industry was stepping up operations to cater to rising demand after two years of the COVID-19 pandemic and fare caps imposed by the government are still in place.

Last month, Minister of Civil Aviation and Steel, Jyotiraditya Scindia had said that the government was working to figure out a method to reduce ATF prices and airfares in the country.

“We have worked assiduously with all state governments. There are two aspects to ATF. One, of course, is the issue of taking into account goods and services tax (GST), but while that issue is being worked on with various ministries, we are still working and chipping away at the problem by going directly to states,” Scindia  had said.

The aviation industry has in the past also asked the government to include ATF under the goods and services tax (GST) to benefit from input tax credit and reduce the stress on operations.