Fuel hedging may not lower air fares

New Delhi, Apr 24: The RBI's Monetary and Credit Policy for2007-08 today failed to cheer the airline industry with several playerssaying the decision to allow actual users of aviation turbine fuel tohedge in global commodities market may not result in lowering air fares.

The feel-good policy allows domestic producers and users to hedgetheir price risk on international commodity exchanges for severalcommodities including aviation turbine fuel (ATF).

''Hedging is only a futuristic view,'' said Kingfisher Airlines'chairman Vijay Mallya. ''What about the high sales tax on ATF which isimposed by states?'' ATF prices in India are nearly 65 per cent highercompared to international benchmarks. Aviation fuel is the singlehighest cost element for airline companies accounting for over 40 percent of total costs.

''The monopoly of government-owned oil marketing companies mustgo,'' said Mr Mallya who is also member of the newly-formed Federationof Indian Airlines (FIA). He said the oil companies fix a high baseprice for aviation fuel to subsidise their other products.

On top of it is the eight per cent central excise tax and then the state sales tax which varies from four to 39 per cent.

Similar views were expressed by Air Deccan's managing director G RGopinath who said airlines worldwide hedge 50 per cent of their fuelrequirements in international markets.

''The RBI's decision will reduced our annual fuel bill, but airfares cannot possibly come down further.'' The country's aviationindustry has witnessed unprecedented growth in air passenger traffic inrecent years due to new budget airlines and a booming national economy.But high fuel costs, wage inflation and high airport charges haverendered the industry losing over Rs 2,000 crore annually.

UNI