Domestic Airlines Welcome Fuel Price Cut, No Immediate Fare Reduction

01/01/2015 9:42 PM IST | Updated 15/07/2016 8:24 AM IST
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A SpiceJet Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India, on Monday, Sept. 17, 2012. India’s decision allowing airlines to sell stakes of as much as 49 percent to overseas carriers may be most beneficial to operators least in need of investment. Photographer: Dhiraj Singh/Bloomberg via Getty Images

Domestic airlines today welcomed the 12.5 per cent cut in jet fuel prices, terming it as a much-needed relief but ruled out any immediate reduction in fares.

"ATF (aviation turbine fuel) rate per kilolitre in Delhi today reduced (by) 12.5 per cent, or by approx Rs 7,500 per kl. Much-needed relief given high cost of operations in India," SpiceJet Chief Operating officer Sanjiv Kapoor tweeted.

Welcoming the oil companies' move to reduce aviation fuel cost, a senior airline executive said it will take a while before the benefits accrued on account of lower fuel prices are passed on to the passengers.

"This is certainly a positive move for the airlines and we welcome it. But, fares are unlikely to come down as they are market driven," the executive said on condition of anonymity.

ATF or jet fuel price at Delhi was cut by Rs 7,520.52 per kilolitre to Rs 52,422.92 per kl by the state-run oil marketing companies.

The cut, effective today, is the sixth reduction in jet fuel rates since August. The price was last cut by 4.1 per cent, or Rs 2,594.93 per kl, on December one.

The losses posted by the domestic carriers are generally attributed to the high operating costs. Fuel makes up about 40-45 per cent of most airlines' overall operating costs.

"Most of the time airlines sell tickets below the operating costs. The first six months say airlines lose heavily due to high fuel prices and exchange factor.

"Only when fuel prices are down over a sustained period, we can think of any tariff reduction as the airline industry is just retrieving past losses," the executive said.

Ratings firm CRISIL Research in its recent report had said it expects about 25 per cent lower jet fuel prices for 2015-16 compared with 2013-14.

Crisil has also said that the domestic airlines may post an operating profit of Rs 8,100 crore in financial year 2015-16, from a Rs 1,500-crore loss in FY14 on account of a host of factors but also warned that the three major carriers -- Air India, Jet Airways and SpiceJet -- will still report losses unless there is a re-capitalisation of as much as Rs 35,000 crore.

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