ATF price slashed 23%, costs one-third of 'frozen' petrol, diesel rates

Jet fuel (ATF) prices have been slashed by a steep 23 per cent in line with a slump in international oil prices and it now costs about one-third of petrol and diesel whose rates continue to be frozen for the 50th day on Sunday.
Aviation turbine fuel (ATF) price has been cut by Rs 6,812.62 per kilolitre, or 23.2 per cent, to Rs 22,544.75 per kl in the national capital, according to a price notification by state-owned oil marketing companies.
ATF, which is used as a fuel in aeroplanes, now costs less than one-third of the price of petrol used in cars and two-wheelers. A litre of petrol in Delhi comes for Rs 69.59 while jet fuel is priced at Rs 22.54 per litre.
Diesel, used mostly in trucks, buses and tractors, is priced at Rs 62.29 per litre.
In fact, even market priced or non-subsidised kerosene is much cheaper than petrol and diesel after its rates were cut 13.3 per cent to Rs 39,678.47 per kl (Rs 39.67 per litre), according to the notification.
This the steepest cut ever and sixth reduction in ATF prices since February.

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Since February, jet fuel prices have been cut by almost two-thirds. ATF price in Delhi before the reduction cycle began in February was Rs 64,323.76 per kl and now costs Rs 22,544.75 per kl.
Similar reduction has been effected in other metro cities as well.
While the oil PSUs have regularly revised ATF prices, they have since March 16 kept petrol and diesel prices on hold ostensibly on account of extreme volatility in the international oil markets.
Petrol and diesel prices were frozen soon after the government raised excise duty on the two fuels by Rs 3 per litre each to mop up gains arising from falling international rates.
Oil companies, instead of passing on the excise hike to consumers, decided to adjust them against the reduction required because of the drop in international oil prices. They used the same tool and did not pass on the Re 1 per litre hike required for switching over to ultra-clean BS-VI grade fuel from April 1.
Market analysts, however, said the same volatility was witnessed in ATF prices as well but that has not stopped the oil companies from passing on the cut to airlines.
More importantly, no airline has been operating since mid-March in view of restrictions placed to check the spread of coronavirus, yet oil companies have continued to revise downward jet fuel prices.
In fact, oil companies used to revise ATF prices on the 1st of every month but they on March 21 adopted fortnightly revisions to pass on the benefit of falling international oil prices to the airlines.
Even non-PDS or market priced kerosene cost has seen rate reduction similar to ATF. It was priced at Rs 65,815.47 per kl in January.
Though the government had deregulated petrol and diesel prices, rate changes have been in the past put on hold by public sector oil companies Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) for reasons that appear to be non-commercial.

 

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There was a 19-day price freeze on petrol and diesel ahead of the Karnataka polls in May 2018 despite international fuel prices going up by nearly USD 5 a barrel. However, no sooner were the elections over, they rapidly passed on to customers the desired increase -- over 16-straight days post-May 14, 2018, petrol price climbed by Rs 3.8 per litre and diesel by Rs 3.38.
Similarly, they had stopped revising fuel prices for almost 14 days ahead of the assembly elections in Gujarat in December 2017.
These companies had also imposed a freeze on petrol and diesel prices between January 16, 2017, and April 1, 2017, when assembly elections in five states -- Punjab, Goa, Uttarakhand, Uttar Pradesh and Manipur -- were held.
During the 2019 general elections, they moderated the revision by not passing on all of the desired increase in rates to consumers, industry sources said. And rates began to rise a day after the final phase of polling for Lok Sabha elections ended.

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

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.
"Pricing in Indian market is not being determined by input costs, but by capacity. This 11 per cent cut is just a small relief as pricing will remain under pressure due to competition. Everybody is scared to see a seat go empty," said an executive of a low-cost airline.
Santosh Hiredasai, an analayst with brokerage firm SBI Caps Securities said that pricing will see more pressure as low cost carrier SpiceJet ramps up induction of new planes.
"Fare reduction is to do with incoming capacity and 2nd half is heavy in terms of capacity addition... So expect pricing to remain under pressure," he said.
Alongside IndiGo, which has indicated a 30 percent increase in seat capacity in next two quarters, SpiceJet will join the race of capacity induction with the airline inducting 26 aircraft by the end of this financial year which includes 18 Boeing 737 Max and eight 90-seater Q400.
That pricing scenario is unlikely to improve was also indicated by SpiceJet CFO Kiran Koteshwar. " In a market like India, there is a cap beyond which airlines will not be able to increase price. Hence it is important to keep costs in control," he said.
Even during the peak festival season in the month of October, airlines saw passenger growth slowing down as they tried to increase fare. Rate of growth slowed down to 13.3 per cent, the lowest in last 15 months.
High fuel price coupled with a weaker rupee have increased the operating cost of the Indian carriers. At the same time, the situation has worsened as the airlines have been unable to increase ticket price due to extreme competition. This has forced the Indian airlines into red as all three listed airlines have posted a loss.
Even market leader IndiGo which has more than 40 percent share of the Indian market reported loss of Rs 6.52 billion -- its first loss since public listing -- followed by Rs 15.21 billion and Rs 3.89 billion loss by Jet Airways and SpiceJet, respectively.