Airfares may be slashed

 

 Travel industry experts said that the lower ATF price regime will prompt airlines to come out with aggressive promotional offers to lure passengers.

Domestic airfares are likely to reduce by 5 to 10 per cent in the 30 days advance purchase segment as oil companies on Sunday cut Aviation Turbine Fuel (ATF) price by 11.3 per cent in line with the fall in international crude oil prices.

With this cut, the ATF price has been reduced to Rs. 46 a litre, making it even cheaper than diesel which costs between Rs. 51 and 56 per litre.

Airlines declined to commit themselves stating that airfares in India are not cost-related and the possible downward revision cannot be of the same proportion as the cut in ATF price.

There has been a cumulative 33 per cent reduction in ATF price since October and airlines are taking this opportunity to reduce their losses rather than passing on all the benefits to passengers.

However, those booking early can benefit by up to 10 per cent while those booking at the last moment will pay the market price depending upon the demand supply situation in that particular sector.

Airlines follow dynamic pricing in fares and charge through a non-transparent slabs system, so it is difficult to quantify the quantum of reduction for all segments of passengers.

“Fares are now 20 to 30 per cent cheaper as compared to November and December fares. This is lean season and in a competitive market, prices should come down. But don’t expect drastic reduction as airfares are not on cost-plus basis in India. This is an opportunity to recoup losses,” said a senior airline official.

However, travel industry experts said that the lower ATF price regime will prompt airlines to come out with aggressive promotional offers to lure passengers, like the 5 lakh seat flash sale by SpiceJet.

Analysts said now the floor is set for a price war among airlines through they would be careful to make some money in this quarter as such opportunity rarely comes.

After price cut, ATF to cost less than diesel

ATF costs Rs. 46.51 per litre and is cheaper than diesel that sells at Rs. 51.52 per litre.

Jet fuel (ATF) price was on Sunday cut by a steep 11.3 per cent and now costs less than diesel.

Last month, its rate had fallen below the price at which petrol is sold.

While petrol and diesel prices have so far not been changed as per the fortnightly revision, non-subsidised domestic cooking gas (LPG) was cut by Rs. 103.5 per cylinder to Rs. 605 a cylinder after international oil prices slumped to near six-year lows.

The price of aviation turbine fuel (ATF), or jet fuel, in Delhi was cut by Rs. 5,909.9 per kilolitre, or 11.27 per cent, to Rs. 46,513.02 per kl, oil companies announced on Sunday.

The reduction, which followed possibly the steepest ever cut of Rs. 7,520.52 per kl or 12.5 per cent effected from January 1, has led to ATF becoming cheaper than even diesel.

Last month’s reduction saw the ATF price slip to Rs. 52.42 a litre, below Rs. 58.91 a litre cost of petrol in Delhi. And after Sunday’s cut it costs Rs. 46.51 per litre and is cheaper than diesel that sells at Rs. 51.52 per litre.

ATF has a higher octane than petrol and diesel is a heavier fraction in the distillation process. Traditionally, auto fuels being of lesser quality than ATF, would cost less.

But four consecutive excise duty hikes since November — totalling Rs. 7.75 a litre on petrol and Rs 7.50 on diesel, have reversed this.

But for these, the cumulative reduction of Rs 14.69 per litre in petrol price in nine cuts since August and Rs 10.71 a litre on diesel since its deregulation in October, would have been higher.

ATF attracts an excise duty of 8 per cent.

The cut, effective from Sunday, is the seventh reduction in jet fuel rates since August. Jet fuel constitutes over 40 per cent of an airline’s operating costs and the price cut will ease the financial burden of cash-strapped carriers.

No immediate comment was available from airlines on the impact of the price cut on passenger fares.

Following the global trend, the price of 14.2-kg non-subsidised LPG cylinder has been cut to Rs 605 from Rs. 708.50 previously in Delhi.

This is the seventh straight reduction in rates of non-subsidised or market-priced LPG, which the customers buy after exhausting their quota of 12 cylinders at subsidised rates, since August.

A subsidised LPG refill currently costs Rs 417 in Delhi.

Price of non-subsidised LPG were last cut on January 1 by Rs 43.50.

In seven monthly reductions, non-domestic LPG rates have been slashed by Rs 317.50 per cylinder, bringing the price to a three-year low.

State-owned fuel retailers, Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) revise jet fuel and non-subsidised LPG prices on 1st of every month based on average imported cost and Rupee-USD exchange rate.