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Jet fuel cheaper than diesel but flying costly

The fuel in your car now costs more than the one to fly a plane. Plummeting crude oil prices have made aviation turbine fuel (ATF) cheaper than diesel, but flying remains a costly proposition as cash-strapped airlines retain high fares to make up for losses incurred earlier, reports Samiran Saha.

business Updated: Mar 10, 2009 01:45 IST
Samiran Saha

The fuel in your car now costs more than the one to fly a plane. Plummeting crude oil prices have made aviation turbine fuel (ATF) cheaper than diesel, but flying remains a costly proposition as cash-strapped airlines retain high fares to make up for losses incurred earlier.

In Delhi, airlines pay Rs 27.10 per litre of ATF, cheaper than diesel by about Rs 4 per litre.

“Airlines are trying to make up for the losses incurred last year,” said Mark Martin, senior consultant with consultancy firm KPMG. “Airlines have opted to keep ticket prices high so as to help them break even.”

With the sharp fall in ATF prices, the operating costs of airlines have come down to between 35 and 40 per cent (from 50 to 60 per cent).

The ATF price, which peaked in August 2008 at Rs 71 per litre, has fallen sharply as crude oil prices fell from a record $147 a barrel to $45 per barrel.

Even after two price cuts, diesel continues to cost more than ATF.

Low passenger load is another reason why fares will stay high.

“Airlines are trying to recover their losses as people are travelling less and planes are flying empty,” an executive with a private low-cost carrier said, on condition of anonymity.

Most airlines are flying at a passenger load of 65 per cent on the domestic circuit, which means that on an average one in three seats is unoccupied.

Industry observers said some airlines are contemplating withdrawing from smaller cities to improve their balance sheets.