Financial Daily from THE HINDU group of publications
Wednesday, Mar 27, 2002
APM dismantling may lead to lower air fares
NEW DELHI, March 26
WILL the dismantling of the Administered Pricing Mechanism (APM) in the petroleum sector from April 1 translate into lower air fares forth domestic travellers?
While the trade and the industry are very hopeful of domestic air fares coming down, the airlines are apprehensive of such a possibility.
"With the APM coming into effect from April this year, the cost of aviation turbine fuel (ATF) would be rationalised and it should be available at international prices which invariably are lower than the prices prevailing in the country. This strengthens the case for the authorities to step in and ensure that air fares move southward,'' chamber sources told Business Line. The cost of ATF is one of the major costs that the airlines have to bear.
However, Indian Airlines (IA) officials counter this and point out that there has been a steady northward movement in prices of ATF in the past few years. According to them, there had been two successive hikes in ATF prices during 2000 alone, which saw the price per kilolitre shooting up from Rs 15,180 to Rs 22,500 per kilolitre.
On the downside, the international crude prices have been firming up over the last month; it has already soared to $24 per barrel. Further, with the modest uptrend in the US economy, the prices are likely to stay firm. Hence, the ATF prices are unlikely to fall, analysts point out.
However, there is unanimity among sections of trade and industry that the dismantling is a step in the right direction.
"The APM dismantling is a step in the right direction. However, what needs to be ensured is that there is no cartelisation of ATF producers after April 1. Please do not forget that this is exactly what happened when Avgas was decontrolled some years back which sounded the death knell of the piston-propelled aircraft in the country,'' an official of a leading courier company said.
Officials of the Ministry of Civil Aviation point to several practical difficulties in the way of the private sector stepping into ATF distribution immediately.
"It will take some time before the infrastructure facilities at the various airports are ready for private sector players to step in. Technically speaking, even though ATF will be decontrolled, it will still be sold only by State agencies for some more time,'' official sources pointed out.
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