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IATA protests against CPC’s high jet fuel prices
The International Air Transport Association (IATA) this week criticised CEYPETCO’s opaque pricing for jet fuel and called for a transparent formula, warning that the soaring cost of refuelling in Sri Lanka was stifling the aviation industry.
A team from the union of global airlines visited Sri Lanka and sounded caution to officials, including those of the Ceylon Petroleum Corporation, that jet fuel here is significantly higher priced than at other Asian airports. For instance, it is 21 percent more than in Singapore; 13 percent more than in Hong Kong; and eight percent more than in Bangalore.
While CEYPETCO’s monthly prices generally tally with the Mean of Platts Arab Gulf (MOPAG), the gap in prices is inconsistent, IATA also observed. “On a few occasions, the CEYPETCO price was maintained even though the MOPAG price had dipped,” it said, in a presentation made to officials. “Without price transparency, CEYPETCO as a monopoly supplier, can set prices as it chooses.” MOPAG is an international pricing benchmark for fuel.
Current CEYPETCO prices are opaque and do not follow global best practice. IATA has urged the Government to adopt a transparent formula comprising MOPAG and a fixed add-on.
“In the absence of competition, the add-on should be capped,” it suggests. IATA also raises doubts that the Government could be taxing aviation fuel for foreign carriers in violation of bilateral air services agreements that govern exemptions. “If tax on jet fuel for international flights is applied, it should be removed in compliance with bilateral air services agreements between Sri Lanka and various countries,” it states, calling for adherence to International Civil Aviation Organisation (ICAO) policies which Sri Lanka, as a member, helped formulate.
But Petroleum Resources Ministry Secretary Upali Marasinghe said the Government did not tax aviation fuel. The prices had also hit national carrier, SriLankan Airlines, the union told policymakers in Sri Lanka. For the financial year 2017-18, the airline’s fuel cost is 27 percent of operating expenses. In April-June 2018, it was of 32 percent of operating expenses.
IATA pointed out that CEYPETCO adds on significantly to the MOPAG price, thereby making jet fuel steeply expensive. The difference is wider than at any other airport in Asia. “For July 2018 where the add-on at CMB [Colombo] hit 52.2 US cents/gallon, the percentage difference would be even higher,” it said.
The global airline union reiterated that these fuel prices were bad for aviation and will impact the benefits the country can derive from a strong industry. For instance, airlines tanker in fuel to avoid dishing out dollars in Colombo. This results in less sales volumes for CEYPETCO. Meanwhile, payload restrictions reduce sellable seats for airlines resulting in higher cost per seat. This, in turn, affects operational viability.
IATA warns that the high cost environment was not conducive for airlines to grow operations and that it could compel existing airlines to reduce services or pull out while deterring new ones from starting services. This could also hamper Colombo’s development into a vibrant airport in the region, it says.
“The overall economic benefits from having competitive jet fuel price outweigh the additional revenue that CEYPETCO gets from higher jet fuel price add-on,” it said.
IATA also commented on the monopoly position of the fuel supplier and proposed that a strategic direction could be to introduce competition in jet fuel supply, allowing the market to drive price efficiency. SriLankan Airlines has repeatedly pointed to the impact high fuel prices were having on its balance sheet. In its last annual report, Chairman Ajith Dias said the company was canvassing strongly for the Government to intervene and provide the airline with aviation fuel at competitive rates which, he points out, is “not the case at the moment”.
The company has been negotiating with CPC to arrive at a pricing structure “that is more competitive and reflects regional fuel costs”, it is stated elsewhere in the report. It also observes that, while the declining trend of jet fuel prices in 2015 continued through 2016 and into early 2017, “prices have gradually edged upward”.