'On verge of stopping operations': Airlines seek Centre's immediate intervention
What's the story
Air India, IndiGo and SpiceJet have written to the government, warning of a potential shutdown of operations due to skyrocketing Aviation Turbine Fuel (ATF) costs. The airlines are seeking financial assistance and a revision in fuel pricing mechanisms. They have also requested a temporary suspension of excise duty on ATF, which accounts for around 40 percent of a carrier's operational expenses.
Rising costs
Rising oil prices and airspace restrictions
In a letter to the Civil Aviation Ministry, the Federation of Indian Airlines (FIA), which represents the airlines, pointed out that recent tensions in West Asia have led to a spike in oil prices. This, coupled with airspace restrictions, has increased operational costs for airlines, especially on long-haul routes. The federation has asked the government to extend the same fuel pricing mechanism across domestic and international operations as was done previously in 2022 with the establishment of the "crack band."
Operational challenges
Urgent intervention needed
The FIA has warned that any ad hoc pricing differences between domestic and international operations could lead to massive losses for airlines. This could result in grounding aircraft and canceling flights. "In order to survive, sustain and continue operation, we request your urgent intervention for immediate and meaningful financial support to tide over the current situation," the federation said in a letter dated April 26.
Financial relief
Temporary deferment of excise duty requested
The airlines are also seeking a temporary deferment of the 11% excise duty on ATF. "With the abnormal increase in ATF prices from the pre-crisis period, adding rupee depreciation to the increased prices, the 11 percent excise duty also increases manifold....and adds to the ATF price as a big impact on airlines," they said. The government recently limited the hike in ATF price to ₹15 per liter for domestic operations, while international operations saw a rise of ₹73 per liter.
Pricing proposal
Proposed transparent pricing framework
The FIA has proposed a transparent pricing framework under the crack band mechanism ($12-22/BBL), which was introduced in October 2022. It said Delhi, India's largest aviation hub, currently has the second-highest VAT of 25% on jet fuel. Tamil Nadu imposes the highest rate at 29%. "The other major aviation cities, viz. Mumbai, Bangalore, Hyderabad, and Kolkata range between 16 percent and 20 percent. These 6 cities cover more than 50 per cent of airlines' operations within India," it said.