Low fuel cost will not mean low fare

Mumbai: The aviation industry has reacted with measured caution to the Reserve Bank of India’s (RBI) decision to allow aviation turbine fuel (ATF) users to hedge their price risk on international commodity exchanges based on their domestic purchases.
However, the ‘feel good measure’ which was announced in its annual Monetary and Credit policy, will not mean lower air fares for passengers. What it does mean is that airlines, which are the end users of the ATF, will be able to reduce the risk of loss caused by the fluctuating ATF prices. They, as end users of ATF, would be able to hedge economic exposure.
But the industry does not see the RBI decision as a ‘big move.’ In fact, the industry’s demand to bring down the base price of ATF and also to have a uniform policy of sales tax has not won any favour till now. The Federation of Indian Airlines (FIA) has been lobbying for both these demands for quite some time now. Without the lowering of the base price and the reduction in the sales tax, the industry feels that the move is a no-gainer.
26/04/07 Manisha Singhal/Daily News & Analysis

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Categories: General Aviation Apr 2007