Amidst the ongoing tension in the Middle East and rising fuel prices globally, the Central Government has recently taken a big step to provide relief to Indian Airlines. The government has approved a special support scheme of Rs 10,000 crore for public sector oil companies (OMCs). The objective of this scheme is to protect airlines from huge fluctuations in the prices of Aviation Turbine Fuel (ATF). However, the biggest question in the minds of passengers is whether this will make flight tickets cheaper?
According to the report of Business Standard, the main objective of this scheme is not to reduce the prices of tickets, but to prevent sudden huge increases. This means that if ATF prices increase rapidly in future, its impact on airlines will be limited and passengers will not have to buy very expensive tickets. According to experts, permanent reduction in fares will be possible only when competition among airlines increases, availability of seats increases and passenger demand remains balanced. It would not be right to expect tickets to become cheaper only on the basis of this scheme.
How will the new ATF scheme work?
Under this scheme of the government, jet fuel will be made available to the participating Indian airlines at a fixed benchmark price. This will provide them protection from major fluctuations in fuel prices in the international market. The benchmark price of ATF for domestic flights has been fixed at Rs 86.32 per liter, while for international flights it will be Rs 104.49 per liter. In comparison, the current market based international price has reached around Rs 142 per liter. However, the final ATF price will not be the same at all airports. After adding taxes, airport fees and other charges of the state governments, its price may be around Rs 115 per liter in Delhi, Rs 114.50 in Mumbai and around Rs 139 per liter in Chennai.
What will be the benefit to airlines?
ATF accounts for about 40 percent of the total operating cost of any airline. When fuel prices increase rapidly, this share can reach 55-60 percent. In recent months, circumstances like the West Asia crisis and closure of Pakistan’s airspace have increased the costs of Indian airlines. Due to this, many airlines have reduced the number of flights on some international and less profitable routes. The new scheme will help airlines to better estimate costs and reduce pressure on their cash flows. This may also increase the possibility of restoring services on some routes in the future.
What will be the impact on common passengers?
The biggest benefit for passengers will be that the sudden sharp increase in air fares can be reduced. Especially during festivals, holidays or any global crisis, when fuel becomes expensive, ticket prices increase rapidly. However, the government has not instructed the airlines to pass on the benefit of fuel cost relief directly to the passengers. In such a situation, airlines will continue to fix fares according to their business strategy.
Oil companies will also get relief
This scheme will be helpful not only for airlines but also for government oil companies. The government will provide them interest free advance funds, which will reduce the burden of temporary losses on ATF sales. When fuel prices normalize in the international market, the amount of assistance given under this arrangement will be recovered. That means it is not a permanent subsidy but a temporary stabilization mechanism.
The government’s ATF Stabilization Scheme is an effort to provide relief to the Indian aviation sector in the current global crisis. This will reduce pressure on airlines’ costs and sudden surges in air fares will be controlled. Although common passengers will get the direct benefit of cheap tickets, there is no guarantee of this at present. Ticket prices will continue to depend to a large extent on demand, competition and the strategy of the airlines.
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