Saturday, December 01, 2018

Capacity addition takes the wind out of ATF price cut benefit for airlines

New Delhi/Mumbai: In some relief to cash-strapped Indian airlines, oil companies on Saturday slashed aviation turbine fuel (ATF) prices by almost 11 per cent.

The cut is steepest in the last two years and will provide some cushion to airlines engaged in a protracted price war have lost control over pricing in one the world's most price sensitive domestic market.

Airline executives, however, expect no significant improvement in margins as pricing will remain under pressure due to agressive capacity induction.

The price per kilolitre (kl) of jet fuel after the latest cut in Delhi, India's busiest airport, is Rs 68,050.97 in December, down from Rs 76,380 last month. In Mumbai, a kilolitre of jet fuel will cost Rs 67,979.58, down from Rs 76,013.2 last month.

Fuel consists of more than 40 per cent of an airline's cost. Indian airlines pay more for fuel as compared to their global counterparts as local taxes increase the cost and a lack of competition due to the monopoly of state-owned oil marketing companies keeps price controlled.
Industry sources said that the cut will only bring small relief, as airlines will continue to offer low-priced tickets as they resume aggressive capacity induction. This may lead to overcapacity and put more pressure on yields in key metro routes.
01/12/18 Arindam Majumder & Aneesh Phadnis/Business Standard