Aviation fuel in India rises by 16 rupees a litre to 137 rupees

State-owned oil companies raised aviation turbine fuel by about 16 rupees a litre on 1 October, taking the price for domestic airlines from 121 rupees to 137 rupees. Commercial cooking gas rose by 62.59 rupees on a 19-kilogram cylinder. Both prices are reset on the first of the month. The aviation increase is the third in a row, after a rise of 6.28 rupees a litre in September, 5.46 percent, and a rise of 5 rupees in August.

Jet fuel can account for up to 40 percent of an airline's operating cost. A 16-rupee move on a base of 121 rupees is about 13 percent in a single revision, larger than the previous two months combined. Airlines do not all pay the headline. State value-added tax sits on top, so the pump price in Delhi is not the pump price in Mumbai or Chennai. The oil companies' figure is the base they notified. The ticket price is a later decision by each carrier.

Why the first of the month moved this far

The companies said the revision tracks international benchmarks and the rupee-dollar rate. ATF is priced off the regional jet-fuel quote, then converted. A weaker rupee and a higher Singapore kerosene quote land in the same 16-rupee box, and the notification does not split them. What a reader can check is the sequence. August plus 5 rupees, September plus 6.28, October plus 16. The curve steepened on the day Brent crude was back above 100 dollars a barrel, the same week Indian equities finished an eighth straight weekly loss. Fuel is the channel that takes a Gulf price into an Indian airline's cost line without waiting for a budget.

Commercial LPG moved the other way for two months and has now reversed. The 19-kilogram cylinder fell by 192 rupees in August and by 183.50 rupees in July, then rose by 9.50 rupees in September and by 62.59 rupees on 1 October. Hotels, canteens and small restaurants buy this cylinder, not the domestic 14.2-kilogram one. A 62.59-rupee rise is a smaller percentage than the jet-fuel jump. It is still a monthly cost that a canteen cannot hedge.

What airlines can pass on

Indian carriers have used fuel surcharges in earlier spikes. A surcharge needs a market that will pay it. Domestic demand after the monsoon is the season when leisure travel and festival bookings overlap, which is why a 1 October rise lands on a fuller calendar than a July rise would. It also lands on a balance sheet already paying more for dollar leases and for any unhedged fuel. A carrier that hedged the second quarter is less exposed to the 16 rupees than one that did not. The oil companies do not publish which airline hedged. The price they do publish is the one every unhedged litre costs from Thursday.

The 40 percent cost share is an industry rule of thumb, not a filing. A low-cost carrier with a single fleet type and high utilisation sits at the top of that range. A full-service carrier with cargo and ancillary income sits lower. Either way, a 13 percent fuel move is several points of operating margin if none of it is passed through. The September rise of 5.46 percent was absorbed in fares that were already on sale. The October rise is large enough that those fares do not cover it.

The next reset

The following revision is 1 November. Between now and then the inputs are the regional jet-fuel quote, the rupee, and whatever state VAT budgets do in the festival season. Delhi and other states have cut VAT on ATF in past years to pull flights. A cut would blunt the 137-rupee base. No state announced one with the 1 October revision. Until one does, the number an airline fuel manager writes down is 137 rupees before tax, 16 rupees above Wednesday, and the third increase since August.