Airlines demand auto-pricing for aviation fuel too

The Airlines Operators Association of Nepal (AOAN) has warned that it will intensify protests if Nepal Oil Corporation (NOC) does not adopt an automatic pricing mechanism for aviation fuel too. The apex body of domestic airlines gave a 10-day ultimatum to the state-owned oil monopoly on Friday to enforce the auto-pricing system.

On September 28, NOC had adopted an auto-pricing mechanism for petroleum products (diesel, petrol and kerosene) in a bid to check its ballooning losses. However, the system has not been implemented for aviation turbine fuel (ATF) and liquefied petroleum gas (LPG).

The corporation has been adopting a cross-subsidy mechanism by increasing aviation fuel prices to stabilize prices of other petroleum products. Currently, the corporation makes a profit of Rs 64.10 on a litre of jet fuel sold to international carriers, which adds up to Rs 448.7 million in monthly profits. Foreign airlines pay Rs 137.16 per litre of aviation fuel.

NOC has been using the profits its earns from sales of aircraft fuel to offset losses on LPG. Subsidies on cooking costs the corporation Rs 436.1 million per month.

Likewise, its monthly profit on sales of ATF sold to domestic carriers stands at Rs 151.8 million. Domestic airlines are charged Rs 143 per litre of aviation fuel which yields the corporation a profit of Rs 50.60 per litre. NOC said that it was planning to revise prices of aviation fuel soon.

AOAN spokesperson Ghanashyam Acharya said that oil prices had been revised downwards for the fifth time in two and a half months, but NOC has not considered reducing ATF prices. Airlines said that steep ATF prices had resulted in high operational costs for them.

Airlines have been passing the burden of fuel price hikes directly to travellers in the form of a fuel surcharge. In the last one and a half years, airfares have swelled Rs 2,500 on long-haul routes and Rs 1,000 to Rs 1,200 on short-haul sectors.

The impact of high fuel prices is visible, according to airlines, in the decreasing number of air travellers. Domestic air passenger movement dropped 7.76 percent in the first three months of 2014. Fourteen domestic airlines, including helicopter operators, flew 332,853 passengers in the first quarter, which means airlines received 28,017 fewer travellers year on year, according to Tribhuvan International Airport.

“It is not justifiable that NOC makes profits of more than 50 percent and 88 percent on sales of aviation fuel to domestic and international carriers respectively,” said the AOAN in a notice issued on Friday. “Making such hefty profits is against the government’s Black Marketing and Some Other Social Offences and Punishment Act, 1975.”

Airlines are allowed to increase the fuel surcharge when fuel prices rise by Rs 4 or more per litre. Domestic airfares have soared more than 40 percent in less than three years. Fuel surcharges have been revised more than six times in the same period.

For instance, a one-way ticket on the longest domestic route Kathmandu -Dhangadhi costs Rs 11,795, which is almost the same as the price of a Kathmandu -Delhi ticket on a no-frill airline.

The fuel surcharge on a ticket to Dhangadhi amounts to Rs 5,540.

The normal airfare on the Kathmandu -Bhadrapur sector has jumped from Rs 6,275 in 2011 to Rs 8,165 presently. The fuel surcharge on this sector is Rs 3,930.

Airline officials said that as fuel accounts for 30-35 percent of their total costs, it becomes the single biggest factor in losses if the fuel surcharge is not raised.

Source: eKantipur