Aviation turbine fuel (ATF), or jet fuel prices, have fallen by over 6% since January and by about 4% since April 1, which could lead to airlines posting narrower losses for the fourth quarter of FY14.
ATF, which comprises about 50% of airline expenditure, was priced at Rs 74,105.16 per kiloliter in Mumbai on April 1 compared to Rs78, 783.84 a kiloliter on January 1. The fall in the ATF prices has been complemented by the strengthening of rupee against the dollar in the last couple of months. The rupee, which closed at R60.08 on Friday, has gained as much as 2.59% against the dollar since January 1.
However, industry experts say though the fall in jet fuel prices has led to lower operational costs for airlines, especially for the fourth quarter of FY 14, it is unlikely that this itself would help airlines come out of the red.
?Had there been no pressure in pricing, some airlines could have broken even or even made some profits,? said Deep Narayan Mukherjee, senior director at India Ratings & Research.
?There is a huge overcapacity in the system since the supply of seats far exceeds the current demand. For this demand and supply to be at somewhat the same level, the economy needs to grow around 8-9% annually, which is clearly not the case,? Mukherjee added.
According to a Center for Asia Pacific Aviation (CAPA) report, Indian airlines ? Air India, Jet Airways and SpiceJet ? are expected to post a combined loss of $ 1.2 billion (about R7,500 crore) for FY 2014.
The fourth quarter is generally considered the weakest in the year, according to industry experts, when airlines often struggle to fill up its seats.
Another, report by CAPA stated that Indian carriers lost $1.65 billion on revenue of $9.5 billion in FY13, while 40% of the annual loss was generated in fourth quarter (January-March 2013) itself.
?ATF comprises about 50% of an airline’s expenditure. Now a 6% fall in the ATF price this quarter will save airlines about 3% on their expenditure, which is a meager amount,? said Amber Dubey, partner and head-aviation at KPMG India, adding, ?In India, ATF is 60% more expensive than that of the Gulf and some Asean countries, mostly due to the taxes levied on this. Only a fall in the ATF prices by 20-30% from the current level will see a definitive impact on the demand.?
He added, ?At present, one has to shell out as much as Rs 12,000-15,000 on a return ticket from Delhi to Mumbai. Unless this comes down to Rs 8,000-10,000 level, level, the demand won’t increase substantially. And for this to happen, ATF prices need to come down.?
Currently, West Bengal is the only state which has slashed sales tax on ATF by 50% for flights from Kolkata airport, and has made ATF tax-free for two other airports in the state. The move by the West Bengal government in August last year came as a major relief for cash-strapped carriers.
