NEW DELHI, MAY 8 : While airlines have been quick to respond to the increase in aviation turbine fuel (ATF) prices by hiking fuel surcharges by Rs 150-300 last week, they seem to be much slower when it comes to passing on the benefit of reduced taxes on jet-fuel to customers. Despite states like Kerala, Andhra Pradesh, Maharashtra and Rajasthan having slashed their sales tax on ATF from 32-33 per cent to 4 per cent, airlines operating flights to and from these states are yet to offer any reduction in ticket prices.

Low-cost operator SpiceJet, which has a 10 per cent market share, has been able to save Rs 1.5 crore a month on its fuel bill due to lower taxation structure in Andhra Pradesh. “We have been talking about reducing our fares, but the question is timing. At present, low airline profitability is not allowing us to pass on the benefit to the customer,” said a senior SpiceJet executive. The airline runs up a fuel bill of over Rs 100 crore a month.

Similarly, state-run National Aviation Company of India Ltd (NACIL) has also refrained from lowering airfares. “Airlines are bleeding. There is a large mismatch on total fuel cost and recoveries by way of fuel surcharge. So, even if a couple of states lower sales tax on jet fuel, there is not much cost benefit,” said NACIL executive director (corporate communications) Jitender Bhargava. “Unless all major airports also reduce their sales tax, passing on any saving makes no sense since it isn’t significant enough.”

While airlines claim that fuel bills have not been significantly impacted by low sales tax, they are nonetheless lining up at airports in these states. More than 100 flights refuel at the newly-opened Hyderabad International Airport everyday, enabling them to save 15-20 per cent on fuel costs, which constitute over 40 per cent of the airlines’ overall operating costs.

Meanwhile, the Civil Aviation Ministry has again pleaded with state finance ministers to reduce sales tax on ATF to 12.5 per cent instead of 4 per cent that it had earlier demanded. If agreed to, airlines would save around 5 per cent on operating costs, but the benefit would be greater in locations with higher air traffic like Delhi, which accounts for 20 per cent of the total fuel uplift by all airlines.