New pricing model aiming to prune jet fuel cost by 15% likely in two months

OMCs to shift to single uniform system instead of the prevailing dual pricing mechanism for domestic and overseas airlines

A new pricing mechanism for aviation turbine fuel (ATF) that aims to reduce domestic jet fuel cost  by at least 15 per cent is likely to be implemented within the next two months, industry executives said.

The change in the pricing policy is being made after talks between the civil aviation and petroleum & natural gas ministries.

Oil marketing companies such as Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Indian Oil Corporation have decided to shift to the MOPAG (Mean of Platts Arab Gulf)-based pricing system.  An industry source said now there would be a single uniform pricing system instead of the prevailing dual pricing mechanism for domestic and overseas airlines.

“There used to be different pricing for domestic and international airlines earluer. It will be similar now. There will also be transparency in price build up, including the cost of operation and margin. Cost, logistics and operations will be (based on) a transparent fixed amount, rather than the ad-valorem rate currently in place,” a source from an OMC said.

Fuel costs now account for 50 per cent of overall airline expenses. Last month, SpiceJet chairman Ajay Singh and IndiGo CEO Ronojoy Dutta called for a reduction of taxes on ATF. Carriers have been lobbying with the government for a parity in prices charged to domestic and international airlines. While foreign airlines pay benchmark global rates, domestic airlines are charged according to the import parity pricing model, which takes into account global ATF price plus transport, handling and other charges, an airline executive complained.

The price of ATF in FY22 rose 67 per cent on a year-on-year basis. Between January-August this calendar, the price of ATF increased by over 53 per cent.