Jet fuel prices in India have increased by 5.3%, in line with a surge in global crude oil prices. This was the 10th consecutive increase this year and the price of aviation turbine fuel has hit a record high.
Jet fuel prices are revised on the 1st and 16th of every month based on the average international price of benchmark fuel in the preceding fortnight. From the start of this year, prices have increased every fortnight.
In the nine hikes starting on January 1, jet fuel prices have been cumulatively increased by 49-rupees a liter. The steepest increase this year happened on March 16 (18.3%).
Russia’s invasion of Ukraine has led to a steep increase in crude oil prices. Recently it touched a 14-year high of $140 per barrel and has consistently remained above the $100 mark since the invasion started.
India meets nearly 85% of its fuel needs through imports and this has added to its current account deficit. To compound its problems, the rupee declined substantially this month, making imports more expensive.
This comes at a time when airlines in India were witnessing a nascent recovery after the lifting of Covid curbs and an increase in passenger bookings. The summer holiday season is now on and there is a pent-up demand for travel.
The challenge for the airlines is to increase fares to meet the increased operating costs, but at the same time being mindful of price-sensitive Indian customers. The government has set minimum and maximum fares for domestic flights and these are applicable for up to a fortnight.
For booking beyond 15 days, airlines are free to set their own fares, and in this category, fares have been hiked by almost 30% on some routes.
Fuel costs, which constitute about 40% of operational expenses, vary from state to state, depending on local taxation. The federal government imposes an excise duty and the state governments charge value-added tax, which varies from state to state.
While in some states it is as low as 1-4%, it is 10-30% in others. High volume destinations such as New Delhi and Mumbai fall in the latter category of high taxes.
IndiGo airline CEO Ronojoy Dutta recently demanded that jet fuel be brought under the Goods and Services Tax as it will help airlines avail the benefit of input tax credit.
Civil Aviation Minister Jyotiraditya Scindia earlier said he had requested the finance ministry to rationalize excise duty on jet fuel, and he was trying to persuade states with high taxes on jet fuel to bring it down.