The thing that the industry is most sore about is the cost of aviation turbine fuel (ATF), which makes up 40-45 per cent of an airline's operating costs. According to the Federation of Indian Airlines (FIA), the average domestic price of ATF is 60-70 per cent higher than that at regional aviation hubs in Singapore and Dubai (See The Killer Cost). Even the discounted price of ATF for international operations is 40 per cent higher than prices elsewhere. The ATF pricing issue, according to the 10-month-old FIA, is quite complicated. "It is not just central duties, but state sales taxes and the lack of transparency in ATF pricing that are huge contributing factors," says Amitabh Kumar, Executive Director, FIA.
It seems the airports bid out rights, with the successful bidder paying a throughput fee. Kumar says that recent bids have seen ridiculous throughput fees that inevitably get passed on to the customers, i.e., the airlines. "If there was rationalisation in the prices of ATF, I'm pretty sure the airlines won't be making the huge losses they are today," says Kumar.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.