Indian airlines warn of shutdown risk, seek relief on fuel prices

Reeling under the pressure of rising international crude oil prices since the beginning of West Asia war, India’s top carriers have warned that they might be forced to shut down airline operations and cancel flights.

Raising the alarm bells against the rising fuel cost, the Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, has written a letter to the Ministry of Civil Aviation dated April 26, according to CNBC TV-18.

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The FIA said that “urgent support is required” for Aviation Turbine Fuel (ATF) pricing to continue airline operations.

Airline industry under ‘extreme stress’

In recent times, the hike in crude oil prices has forced oil marketing companies to increase the prices of ATF, which accounts for more than 50% of the operational cost of the air carrier.

In its letter, the FIA flagged the severity of the crisis and noted that the airline industry in India is “under extreme stress” and “on the verge of closing down or of stopping its operations.”

According to FIA, ATF prices have become increasingly unpredictable and are hurting both domestic and international operations.

The industry body highlighted that the pressure is acute on international routes. It added that the rising ATF costs are making a few routes unviable and leading to significant losses. Further, these have significantly impacted margins for Indian carriers competing with foreign airlines operating out of lower-cost hubs, FIA added.

Criticising the current pricing mechanism, the FIA said that “ATF adhoc pricing is creating severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable.”

Due to this, airlines are being forced to reassess network viability.

Fallout of the Iran conflict

On April 1, oil marketing companies had announced the decision to increase jet fuel prices as the global economy reeled from the West Asia conflict.

Civil Aviation Minister Ram Mohan Naidu earlier informed that the PSU oil marketing companies will be implementing a partial and staggered increase of 25% (Rs 15/litre) for domestic airlines. He ensured that the foreign routes would bear the full market-aligned price.

This approach will help shield passengers from the sharp rise in fares and ease the burden on domestic airlines, Naidu added.

FIA seeks tax relief, pricing reform

The FIA has urged the government to suspend the 11% excise duty on ATF for domestic operations on a temporary basis and reinstate a “crack band” pricing mechanism.

It has further asked to reduce VAT in key aviation hubs.

The industry body has cautioned that continued volatility along with high pricing might have serious operational consequences.

“Any adhoc pricing… or irrational increase in the price of ATF will result in unsurmountable losses for airline and will lead to grounding of aircraft resulting in cancellation of flights,” it added.

It noted that the crisis could further translate into reduced connectivity and higher fares.