Mumbai, May 19: Surging crude prices are hurting airlines — a higher cost of aviation turbine fuel (ATF) is straining their balance sheet, while expensive tickets are keeping passengers away.

ATF prices rise as crude prices go up, and airlines increase the surcharge component of fares to cushion the impact of the ATF price hike.

A rise in fuel surcharge has resulted in a steep decline in passenger growth — 12 per cent during January-March against 35 per cent a year ago. Industry sources said that airlines might jack up the fuel surcharge even further to combat the ATF price spiral.

Airlines have increased the fuel surcharge by around Rs 1,000 from Rs 1,350 in December 2007, when crude prices were hovering at around $95 per barrel. Crude prices have surged 33 per cent since then to $126 a barrel.

Fuel accounts for about 60 per cent of an airline’s operating costs now against 40 per cent earlier.

Jet Airways CEO Wolfgang Prock Schauer told The Telegraph, “The government must come out with a policy to restrict any additional hike in ATF prices. The policy should insist on reducing the prices from its current levels. The last three increases in oil prices have landed the industry with a loss of about $700 million. Although the load factor at Jet Airways has not been affected, the airline industry will end up with much less air passengers if fares keep going up in this manner.”

Analysts said the industry incurred a total loss of about $1 billion over the last one year. About 40 million passengers travel by air on an annual basis in India.

On the basis of the $1-billion loss, each carrier has suffered an estimated loss of $25 per passenger over the last one year, periodic hikes in fuel surcharges notwithstanding.

Analysts said even with the present fuel surcharges of Rs 1,950 for short haul and Rs 2,350 for beyond 750 kilometre, the airlines are not adequately equipped to make up for the fuel bill losses.

Tax cut

The aviation ministry is lobbying the states to slash the sales tax on ATF to 4 per cent from 20-30 per cent now, which can save up to 10 per cent of the operating costs for the airlines. So far, three states — Rajasthan, Andhra Pradesh, and Kerala — have reduced sales tax.

“As a first step, sales tax on ATF should be brought down to 4 per cent as soon as possible,” Schauer said.

To minimise the impact of rising fuel prices on overall fares, airlines have been constantly revising downwards base fares, which in turn may result in lower profits for many airlines. We are also in talks with various oil companies for discounts on ATFs, but nothing concrete has been decided so far,” Schauer added.

Sources said Delhi and Mumbai accounted for about 50 per cent of the country’s air traffic and consumed almost 40 per cent of the ATF. The Maharashtra government has reportedly agreed to reduce the sales tax on ATF to 4 per cent for Mumbai.