Cargo firms like FedEx, Gati and Blue Dart allege local airlines fix fuel prices

MUMBAI: The industry body representing air cargo companies, including FedEx, GatiBSE 0.14 % and Blue Dart, has alleged that the domestic airlines have formed a cartel to rig prices under the pretext of fuel surcharge.

Seeking redressal, the Express Industry Council of India (EICI) wrote to the Competition Commission of India (CCI) and to the Civil Aviation Minster Ajit Singhlast week urging them to look into the matter. 

"All domestic airlines have been increase the fuel surcharge by the same amount at more or less the same time. This has led us to believe that they acted in concert," said Vijay Kumar, COO, EICI. 

The EICI has demanded that airlines must stop charging fuel surcharge till such time as pricing is made transparent and market forces allowed to determine pricing. 

Domestic airlines are already mired in a controversy after leading industry luminaries alleged that airlines fix fares. 

"The airlines increased the fuel surcharge by about 70% last year while the crude oil and dollar did not show such an abnormal increase. There is no transparent mechanism to charge fuel surcharge and the increases are ad hoc and arbitrary. The lack of a transparent mechanism of the levies makes it difficult to recover charges from customers," said Anil Khanna, MD, Blue Dart ExpressBSE -0.93 %. 

Blue Dart, however, has its own aviation network so its costs are relatively higher than other players. 

Domestic airlines started levying fuel surcharge on cargo players in 2008. All domestic airlines use the belly of their aircraft for cargo movement. So, an A320 that is used by airlines like Air India and IndiGo would move about seven to eight tonnes of freight and a Boeing 737, operated by Air India, SpiceJetBSE -0.21 % and Jet AirwaysBSE 1.16 %, would move about three to four tonnes of goods in one flight. 

"The industry is slowing down, and if costs continue to increase like this, the industry will bleed further. It is, not possible for us to pass on this hike in fuel surcharge to our customers every quarter or every month", said Subasish Chakraborthy, MD, DTDC. 

The EICI, after studying price movement of air turbine fuel and the fuel surcharge levied by domestic airlines over the past four years, has found that the hike in the surcharge is not in line with the price movement of the ATF. In fact, there is no correlation. The ATF prices have see-sawed over the past year in the range of $90 to $115 per barrel. 

Internationally, according to express air cargo officials, this volatility is hedged to a certain extent and the interest of companies is protected as the fuel surcharges are benchmarked to an index, which is not the case in India. Benchmarking prohibits airlines to escalate pricing when ATF prices shoot up at the same time it allows the benefits to be passed on to logistics firms when the prices dip. 

In its letter to the CCI, EICI said that the determination of the fuel surcharge is also opaque as there is no transparency in the mechanism followed by air carriers and these companies who are made to pay have no say in fixing these prices. 

For example, freight rates on Delhi- Mumbai sector is 7/kg, but the actual costs paid by express air cargo companies to airlines is 28/kg due to various other levies like per flight charge and airway bill charge including fuel surcharge, almost 300% more than the determined charge. 

The fuel surcharge was hiked by around 15% by the airlines like IndiGo, Jet AirwaysBSE 1.06 %, SpiceJetBSE -0.21 % and Air India all within a gap of four days when in fact the pricing of fuel had gone down, EICI wrote to CCI.

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