With the Multi-Commodity Exchange launching aviation turbine fuel futures contracts in July 2008, airlines in the country are planning to hedge ATF to reduce price fluctuation risks. Meanwhile, airlines are also trying to find ways to cut their fuel bills.
According to Asha Katyal, associate director, Ernst & Young, "The Indian aviation sector is presently in a slump due to the steep increase in the global crude prices coupled with a slowdown in the local economy. Falling yields, turmoil in the financial markets along with the survival consolidations have led to the creation of the Big 3 airlines in India. It has put a question mark on the immediate future of the low cost carrier model in India."
The proportion of ATF in operating costs of airlines is expected to rise to 34 per cent in 2008 from 14 per cent in 2003. During 2003-2007, the total fuel costs for the aviation industry have risen at a CAGR of 33 per cent globally.
Crude oil prices have risen steadily over the past two to three years, reaching a high of $ 147 per barrel of crude in early 2008. The global transportation industry has been severely impacted due to the rising fuel prices since it is the largest cost component for all forms of transportation.
In the wake of a significant ATF price rise over the past few years, airlines in the country have been constantly hiking fares, which in turn have led to a decline in passenger traffic and lower utilisation.
Hence, most airlines have cancelled or deferred aircraft orders.
Kingfisher had recently announced plans to import ATF. Many airlines are now focussing on effective implementation of cost-cutting measures and diversification of revenues to improve their profitability in the near future.
Airlines across the country have been planning and undertaking some cost-cutting initiatives.
Owing to high fuel costs in the country, airlines plying on international routes often exercise the option to re-fuel at cheaper ATF prices at international hubs.
Additionally, international airlines offering services in the Indian market are not subject to local sales tax. These factors have put most domestic airlines at a disadvantage vis-a-vis international airlines and domestic airlines flying on international routes.
The aviation industry is now lobbying with the Centre to grant ATF a declared goods status, which would result in a uniform levy of 4 per cent sales tax at the state level.
Airlines have been conducting fuel efficiency analysis, which involves fuel calculations on a daily basis, based on the availability of optimum routes in terms of wind, flight levels and overflying charges, route rationalisation to prune the number of flights and increase utilisation.
Aviation groups constituting a full service carrier and a low-cost carrier are consolidating a number of flights and on-ground staff and services to leverage on realised synergies.
Overall, passenger movements increased at a CAGR of 21.7 per cent over FY'04-08. But, growth slowed to single digits (5.1 per cent) in Q1 '09, with international passenger traffic registering a y-o-y increase of 10.6 per cent, while domestic passenger traffic exhibited an increase of 3.4 per cent.
During the same period, cargo traffic registered a y-o-y increase of merely 5.9 per cent, largely due to a sluggish 3 per cent growth in domestic cargo.
© 2026