The Central Government has launched a new ‘Pricing Scheme’ to cushion the country’s domestic aviation sector and reduce the impact of inflation on the international market. At the same time, state-owned fuel traders have raised the price of aviation fuel or aviation turbine fuel (ATF) by around ten percent. Under the government’s new arrangement, domestic airlines will get a fixed pricing benefit from ATF for the next three years, thereby protecting the companies from global market volatility.
According to government sources, the scheme is completely voluntary and airlines can decide whether to join it or not. Airlines adopting the scheme will have to pay Rs 115 per liter of ATF against Rs 104.927 earlier. On the other hand, companies that have decided to stay out of this framework will have to buy fuel at the current market price of around Rs 142 per litre. International airlines are also currently buying fuel at the same market price. Institutions included in the scheme will be protected from international market fluctuations during the lock-in period. On the other hand, foreign companies will benefit from falling fuel prices but bear the financial burden when prices rise.
86.32 per liter based on fixed pricing formula ‘free-on-board’ standard. This includes airport fees, oil company dividends and applicable taxes. According to sources, the current effective price per liter of ATF will be Rs 115 in Delhi, Rs 114.5 in Mumbai and Rs 139 in Chennai. Conflicts in West Asia earlier this year sent global energy prices soaring. Despite this, domestic ATF prices in Delhi remained stable at around Rs 105 per liter for over two months. Despite the increase in international market prices, the state-owned oil companies are facing huge losses as they are unable to pass the full burden on consumers.
The Union Cabinet has approved a Rs 10,000-crore pricing framework to offset these losses and protect the aviation sector from such financial turmoil in the future. The aim of this framework is to reduce losses for oil companies and provide a stable business environment for airlines.
Under the new system, if the global benchmark price rises above the base rate of Rs 86.32 per litre, the government will pay interest-free advances to oil marketing companies to cover the difference. Later, when fuel prices fall in the international market, the government will recover the surplus and deposit it in India’s reserve fund. The current government’s move is expected to bring long-term stability to the domestic aviation sector and have a direct impact on ticket prices for air travelers in the coming years.