New Delhi: The government move to levy 5 per cent import duty on aviation turbine fuel (ATF) is likely to have only a marginal impact on airlines as the volume of jet fuel coming into the country is less than 4 per cent of the total consumption.
IndiGo is the only carrier that meets a portion of fuel consumption by directly bringing ATF from overseas.
Industry sources said the low-cost private carrier’s total import accounts for 10-12 per cent of its fuel bill. Another major carrier SpiceJet has regulatory approval to import aviation turbine fuel but the airline is yet to start shipping in.
“It needs a lot of investment initially to directly import the jet fuel. This is perhaps the reason not many airlines have started importing. Then, an airline should also be able to get better deal from fuel suppliers,” an airline executive said.
In a bid to reduce current account deficit and contain the fall in rupee, the government on Thursday hiked import duty on 19 different items, including ATF. The increased rates will be effective from September 27 midnight.
While the increase in import duty on ATF is expected to have only a limited impact, the timing of the decision is certainly not right for airlines as they are already facing the double whammy of rising jet fuel price and depreciating rupee. This has badly affected their bottom lines. Rising fuel price, which accounts for up to 40 per cent of their total operating cost, is weighing heavy on them and experts are predicting full-year loss for airlines.
In its report this week, rating and research firm Icra said the Indian aviation industry is likely to report an aggregate loss of Rs 8,800 crore in the current financial year.
Furthermore, some of the airlines have large capacity expansion plans, which may be either owned (through debt funding) or on operating lease. The industry is expected to require capital infusion of Rs 20,000 crore over FY19-21.
There is huge yield pressure on the domestic airlines as expenses have significantly gone up over the last few months, while earning is yet to reflect it proportionately. With additional capacity in the market, airlines have frequently launched fire sale of tickets.
They, however, hope that fare level would rise in coming months with the onset of peak season from October.