Airlines not keen on removing fuel surcharges

For airlines, fuel surcharge is a levy that is helping them curtail losses significantly. And so, even though oil companies have cut Aviation Turbine Fuel (ATF) prices by around 20% in the recent past, airlines refuse to make a corresponding reduction in fuel surcharge, which was first introduced early last year to counter the impact rising oil prices on their operational cost. For now, carriers have said they will not touch the levy till at least the next quarter. And this month’s marginal hike in ATF prices has only assisted them in arriving at the decision. “We have not yet recovered our entire losses due to jet fuel price hikes last year, so it would make sense to retain the surcharge for one more quarter,” said SpiceJet Ltd CEO and chairman Siddhanta Sharma. And why not? The levy, along with congestion charges, has helped SpiceJet keep its losses in the second quarter in check. “Had it no been for these two charges, we would have been worse off,” said Sharma.

Jet Airways was also able turnaround in the third quarter of this fiscal partly on account of these levies. Such positive impacts on profit are keeping carriers from shedding these taxes that may not have been part of their original business model. Manoj Chacko, Kingfisher Airlines GM, sales, said: “They may not be part of our business model but they enable us to offset the impact of, at least, some of the unbudgeted costs arising out of abnormal situations like oil price rise and congestion.” But Air Deccan chief operating officer (COO) Warwick Brady says till the Union petroleum and finance ministers do something to rationalise the duties on ATF and bring its price on par with international tariffs, fuel surcharge will continue to be integral part of air travel in India. “Oil companies are very irrational in their hikes and cuts of ATF prices. When it comes to increasing the price, they match it with the international rise, but when it comes to decreasing, it is usually below the international decline.

Today, the cost of ATF in India is 70% higher than international price,” points out Brady. Fuel surcharge was first levied by domestic carriers early last year after global crude prices soared past $70 a barrel. It started with Rs 300 and was then raised to Rs 500. This was hiked two more times by Rs 150 and Rs 100. Currently, airlines are charging Rs 750 as fuel surcharge. Besides this, a congestion surcharge of Rs 150 is also embedded in airfares. A budget airline executive informed that these two levies (Rs 900) cover around 25% of their per-seat operational costs. Analysts believe the two additional charges provide a cushion to airlines against cut-throat competition on the fare front to some extent. “They have now got used to this cushion. It assures them of some recovery on their cost. But this can go on only till there is consensus on it from all of them. Even if one of them decides to pull back, the others will also have to do so or else they will lose business,” said an analyst.

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