ATF price shock: Govt weighs revival of stabilisation fund as airlines feel fuel heat – report

NEW DELHI: The government is weighing a fresh mechanism to stabilise aviation turbine fuel (ATF) prices as the prolonged West Asia crisis pushes up fuel costs and puts increasing pressure on airline finances.A senior government official said the Centre is considering whether to bring back the ATF price stabilisation fund. Specific details of the proposed mechanism were not immediately available, as reported by PTI.Meanwhile, civil aviation minister K Rammohan Naidu said on Tuesday that the government was discussing the issue with airlines and oil marketing companies (OMCs), with ATF prices emerging as a key concern for the industry.“One of the most important things is how the West Asia crisis is putting a big burden on ATF prices. We are in discussions with airlines and OMCs (Oil Marketing Companies),” Naidu said on the sidelines of a conference in the national capital.The move comes after the government had introduced a similar support mechanism in June. The Union Cabinet had cleared one-time budgetary support of up to Rs 10,000 crore for OMCs to stabilise ATF prices and support domestic airlines. However, airlines were not keen to use the facility and the scheme has since lapsed.The latest discussions also come as airlines face a sharp increase in fuel costs. ATF accounts for around 40 per cent of an airline’s operating expenses, making movements in jet fuel prices a major factor in airline profitability and ticket prices.

ATF prices climb, airlines pass on cost

Domestic ATF prices have risen sharply in recent months. Prices were increased by Rs 5 per litre in August and another Rs 6.28 per litre in September, taking the Delhi rate to Rs 121.28 per litre.On October 1, ATF prices rose by another Rs 16 per litre to around Rs 137 per litre, according to TOI’s earlier report, taking the fuel cost to its highest level in years. ICRA estimates that fuel typically accounts for 30-40 per cent of an airline’s operating expenses.The impact is already being passed on to passengers.IndiGo, the country’s largest airline, announced a hike in fuel charges from October 6 for both domestic and international flights, citing the continuing rise and volatility in ATF prices. The airline said the latest month-on-month increase in fuel prices was more than 14 per cent and had taken ATF costs to among their highest levels in the past decade.The latest move follows an earlier round of ATF-related pressure on airlines. IndiGo had also reduced flight frequencies on some routes in September, with an official citing higher ATF costs linked to the West Asia crisis as one of the factors behind the capacity cuts.The industry, meanwhile, has been pressing the government for a broader overhaul of the way jet fuel is priced.The Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, last month sought a review of the existing ATF pricing formula. It argued that domestic ATF should be priced on the actual cost of fuel plus a reasonable margin instead of being linked to international benchmark pricing.In a letter to the civil aviation ministry, the FIA said the sharp rise in fuel costs, along with geopolitical disruptions and rupee depreciation, was putting significant pressure on airline cash flows and viability.It was earlier reported that airlines were also seeking measures such as a review of the pricing mechanism and relief from taxes and refinery margins as elevated global fuel prices squeezed their margins.ATF prices in India are revised by OMCs on the first day of every month, based on international benchmark prices and foreign exchange rates, with rates also varying across states because of local taxes.