Record ATF price hike to hit airlines’ finances

New Delhi: Air passenger traffic may have staged a strong recovery in March, but a record rise in aviation fuel prices on Friday is likely to strain airlines’ finances.

In New Delhi, the price of aviation fuel (ATF) rose a record 20.74% from a month ago to 1 12 924.83 per kiloliter. Prices in Kolkata, Mumbai and Chennai rose 1 17 353.71, 1 11 690.61 and 116 583.71 per kiloliter respectively.

Aviation fuel prices are revised every fortnight and differ between states due to varying VAT rates imposed on them. This is the seventh increase of this kind in 2022. Brent oil traded at $ 105 on Friday, an increase of 65% year-on-year.

Aviation fuel accounts for 30-40% of the cost of operating an airline in India, and the price increase will shrink the profit margins of airlines that have reported huge losses in recent quarters due to the pandemic.

At the same time, the airlines have pressured the government to include aviation fuel in the tax on goods and services (GST) because it will give the airlines the benefit of an input tax.

“The high taxes on aviation fuel will need to be reviewed,” said a high-ranking airline official, asking for anonymity.

Airlines may find it difficult to pass on the entire cost increase to passengers without affecting demand, the official said, adding that the positive thing is that the market has not crashed so far despite high air fares.

On the brighter side, domestic traffic has seen an increase in recent weeks, with a decrease in active cases of covid.

According to data compiled by the aviation website NetworkThoughts, 10.26 million passengers flew on domestic flights in March, an increase of 34.31% compared to February. The total number of flights operated by the airlines in March was 37.39% higher than in February.

“Air passenger traffic is expected to improve further during the April-June quarter, which is traditionally a hectic period for travel. But rising oil prices are likely to drive a potential recovery by a few quarters,” the senior airline official added.

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