Monday, June 06, 2022

Airlines bullish on growth despite a few air pockets

The Indian aviation industry, which contributed five per cent to GDP, offers four million jobs and another seven million jobs through tourism and related activities. Aviation turbine fuel (ATF) is an important deciding factor in cost of operation in aviation industry. Jet fuel accounts for 45 per cent of an airline's cost of operation. Brent crude oil has jumped over 30 per cent to $101.40 on a year-to-date basis. The commodity was at $77.78 per barrel.

Following the rise in crude oil prices, the cost of aviation turbine fuel (ATF) has advanced 19 per cent to Rs 90,519 per kl from Rs 76,062 per kl. The rise in ATF prices may hit the balance sheet of airline companies which accounts for more than 35 per cent of the cost of running an airline in India. Maintenance and repair taxation in India remains the highest globally. With an 18 per cent GST levy, providers have to compete on sale price with overseas players that only pay 5 per cent – that too at cost price. Consequently, most airlines contract their maintenance overseas, leading to a loss of jobs and output.

The convergence between the defence sector and the civil MROs will be established to bring down the maintenance cost of airlines. Airport (aeronautical) charges levied by Airport Authority of India are higher. According to a latest survey, the airport charges levied by the Indian airports (Domestic and International Terminal) are amongst the highest in the Asian and the Gulf countries. This adds more burden to aviation companies. Established airlines are threatened by low cost carriers, which are eating into their market share. In order to consolidate their market share, top premium airlines were forced to reduce their ticket fares to around 15-20 per cent. Such a slash in price will lead to a price war in the long run amongst the airlines with the only goal of increasing their market share.

06/06/22 Vincent Fernandes/Hans India

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