Flying is set to become more expensive as oil marketing companies on Tuesday increased aviation turbine fuel (ATF) prices by approximately 10% under the new price-stabilisation regime. Jet fuel for domestic carriers will now cost Rs 115 per litre, up from Rs 105 per litre.
Price Freeze for Three Years
The only relief for airlines and passengers is that ATF prices will remain frozen at this level for the next three years for domestic and international flights of Indian carriers that opt for the new mechanism. ATF accounts for about 60% of an airline's operating costs, making this a significant factor in determining air fares.
Impact on Air Fares
Apart from higher operating costs due to the rupee's fall and fuel price rise, airfares are under pressure as airlines cut flights on account of softening demand. The price-stabilisation mechanism is aimed at shielding airlines and passengers from sharp swings in global oil prices.
Government's Price Stabilisation Support
The government announced the price-stabilisation support mechanism last week. The Rs 10,000-crore scheme is optional. Carriers that do not opt for it will continue to pay market-linked prices, currently around Rs 142 per litre, similar to international airlines.
How the Scheme Works
Under the scheme, the government will provide budgetary support in the form of an interest-free advance to oil marketing companies to compensate them for not passing on higher fuel costs to Indian carriers during periods of price spikes. Last week, Rohit Raj, director in the ministry of civil aviation, said the benchmark price had been fixed as a one-time arrangement for three years.
This development comes as airlines grapple with multiple cost pressures, and passengers may soon see higher ticket prices as carriers adjust to the increased fuel costs.
