JET FUEL PRICING AND SUPPLIES SCENARIO IN INDIA AND JET FUEL PRICING AND SUPPLIES SCENARIO IN INDIA AND ITS IMPACT ON THE ECONOMICS OF THE CIVIL AVIATION ITS IMPACT ON THE ECONOMICS OF THE CIVIL AVIATION INDUSTRY INDUSTRY Presentation by Presentation by SAROJ K. DATTA SAROJ K. DATTA EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR JET AIRWAYS (INDIA) PRIVATE LTD. JET AIRWAYS (INDIA) PRIVATE LTD. 13 13 th th MAY 2004 MAY 2004 MIDDLE EAST JET FUEL CONFERENCE MIDDLE EAST JET FUEL CONFERENCE 12 12 th th – 13 – 13 th th MAY 2004 MAY 2004 BAHRAIN BAHRAIN
26
Embed
Presentation by SAROJ K. DATTA EXECUTIVE DIRECTOR JET AIRWAYS (INDIA) PRIVATE LTD.
Presentation by SAROJ K. DATTA EXECUTIVE DIRECTOR JET AIRWAYS (INDIA) PRIVATE LTD. 13 th MAY 2004. JET FUEL PRICING AND SUPPLIES SCENARIO IN INDIA AND ITS IMPACT ON THE ECONOMICS OF THE CIVIL AVIATION INDUSTRY. MIDDLE EAST JET FUEL CONFERENCE 12 th – 13 th MAY 2004 BAHRAIN. - PowerPoint PPT Presentation
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
JET FUEL PRICING AND SUPPLIES SCENARIO IN INDIA JET FUEL PRICING AND SUPPLIES SCENARIO IN INDIA AND ITS IMPACT ON THE ECONOMICS OF THE CIVIL AND ITS IMPACT ON THE ECONOMICS OF THE CIVIL
AVIATION INDUSTRYAVIATION INDUSTRY
Presentation by Presentation by SAROJ K. DATTA SAROJ K. DATTA
EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR JET AIRWAYS (INDIA) PRIVATE LTD.JET AIRWAYS (INDIA) PRIVATE LTD.
1313thth MAY 2004 MAY 2004
MIDDLE EAST JET FUEL CONFERENCEMIDDLE EAST JET FUEL CONFERENCE1212thth – 13 – 13thth MAY 2004 MAY 2004
BAHRAIN BAHRAIN
2
Aviation Scenario – Worldwide
Last few years have once again clearly highlighted the highly cyclical nature of the Aviation industry worldwide.
Decade ending with 2000 showed promise of a bright future for the industry: both in traffic growth and financial results.
However, following the –Dot-com bust and cascading economic fallout–September 11 terrorist attack;–Followed by events such as the SARS epidemic and the Iraq war;–Traffic decline; and–Resultant Increases in costs and expenses; Post 2001, the industry experienced severe downturn from which it is only now beginning to slowly recover
Recent events as also declining yields and competitive pressures have highlighted the importance of controlling costs and effecting improvements in productivity
3
Aviation Scenario – India
Indian Aviation industry also followed the worldwide trends during
this period.
Passenger traffic on domestic sectors declined by around 7% in
2001-02 accompanied by a significant drop in yields.
2002-03 saw a reversal in the trend but the burden of the
previous years continued to be reflected in the bottom lines of
the airlines.
Assisted by an improved economic climate and favourable policy
changes, 2003-04 saw a growth of over 7.5% in domestic
passenger traffic.
4
Aviation Scenario – India
Indian Air Travel Market: witnessing dramatic changes due
liberalized Government policies.
Some of the recent Government announcements are
– Private airlines permitted to operate to neighbouring South Asian
countries, namely Sri Lanka, Nepal and Bangladesh.
– Input costs have been lowered through
• Reduction of Tax burden on air travel by abolishing Inland Air
Travel Tax and Foreign Travel Tax.
• Reduction in domestic Landing Charges for jet aircraft by 15% and
removal of Landing Charges for aircraft lower than 80 seats.
With a forecasted 8% plus growth in GDP per annum air travel is
also estimated to grow by around 8% per annum over the next 5
years.
5
Jet Airways – A decade of Successful Operations
Started operations on 5th May 1993 with a fleet of 4 B737-300
aircraft.
1993-94 : 28 Daily Flights covering 12 cities in India.
Currently : Flies to 41 cities in India and to Colombo, Sri Lanka with a
fleet of 41 aircraft and operating more than 255 flights a day.
Will be starting operations to Kathmandu and Dhaka shortly.
Carried 6.9 million passenger in financial year 2003-04 and estimates
to carry around 7.5 million in 2004-05.
Launched innovative schemes aimed at leisure traveller – APEX Fares
in August 2001.
Current Market Share: 46%-47%.
Has received numerous accolades as India’s best domestic airline.
6
Aviation Turbine Fuel (ATF)
Aviation Turbine Fuel is one of the most important constituents of
any airline’s costs.
In India it is even more so because of the huge disparity in ATF
prices applicable in India and elsewhere in the world.
7
ATF Pricing Scenario: INDIA
Until April 2001 ATF prices in India were determined by
Government through an Administered Price Mechanism (APM).
This was based on a system of cross-subsidy – for socio-economic
reasons prices of some petroleum products such as kerosene and
diesel were “subsidized” by setting higher prices for ATF.
In April 2001, the APM was dismantled and the Oil Companies given
freedom to price ATF based on input costs and world market prices.
Thereafter ATF prices in India have fluctuated widely depending
on movements in world prices.
8
ATF Pricing Scenario
Despite withdrawal of APM and linkage of ATF pricing with
international market prices, price of ATF in India continues to be
much higher than the prices prevailing worldwide.
Despite being competitors with possibly differing input and
refining costs, the three Government owned oil companies
effectively work as a cartel; prices charged by the three oil
companies are identical.
9
ATF Pricing Mechanism
ATF supplied by Indian oil companies is basically from imported
Crude refined by them. There is no direct import of ATF.
Import Duty on Crude is 10% whilst on ATF is 20%.
Oil Companies, however, follow an import parity principle and
levy a 20% add-on to the Refinery Transfer Price.
Apart from the import parity principle, the Oil Companies also
include a 16%-49% add-on towards marketing margin and
contingencies on the Refinery Transfer Price after the addition of
the import parity add-on.
The add-on varies between the various cities.
10
ATF Pricing Mechanism
On this, the Central Government levies an Excise Duty of 8%.
On the resultant price, the various State Government levy local
Sales Taxes ranging from 4% to 39%: which on an average works
out to 25% countrywide.
The Government levies thus works out to an add-on of
35%.
11
ATF Pricing Mechanism
ATF
Refined ATF
Refinery Transfer Price(RTP)
ATF Price
ATF Price to airlines
Add-on of 20% - Import parity
Marketing margin add on 21%
Government levies of 35% - 8% Central Sales Tax plus 25%
State Sales Tax
Nearly double the world-price
12
Impact of high ATF Prices
ATF Expenses: Constitute around 30% of the total operating
costs for domestic Indian carriers.
In comparison, for Association of European Airlines (AEA)
members: Aircraft Fuel & Oil Expenses:Constitute 13.3% of
Total Operating Expenses.
13
0.00%
4.00%
8.00%
12.00%
16.00%
20.00%
24.00%
28.00%
32.00% Fuel & Oil Expenses as a % of Total Operating Expenses(Comparison with Association of European Airlines)
AEA Average: 13.31%
Prices as of July, 2003
India Average: ~30%
ATFOperating Cost Comparison
14
Impact of High ATF Prices
Thus, Domestic carriers in India pay nearly double the prices vis-
a-vis elsewhere in the world.
Reasons for this have been explained earlier.
A graphical presentation of this difference follows.