Pricing Pressure: Airlines wobble under the weight of ATF

Even hefty losses have not dented the confidence of airline companies. “Indian aviation sector’s growth could be extremely, extremely high,” is the mood in corporate boardrooms of most airlines. But behind this visible enthusiasm lies a deep worry — the enormously high cost of aviation turbine fuel (ATF) — which is choking the profitability of most carriers.

ATF or jet fuel, is the single largest cost element for airlines, accounting for over 40% of their total costs. While the basic international price of ATF remains similar in most countries, there is huge variation in the final price. Surprisingly, ATF prices in India are almost 70% higher than in most other countries. The reason: high taxes that are being levied on jet fuel and some other policy loopholes.

The various taxes levied by the Centre, state governments and large margins of public sector oil companies have resulted in high prices of ATF. The taxes on ATF range from 42% to 75%. Apart from taxes, high margins of oil firms — which range between 16% and 21% — further push up the prices of jet fuel.

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