Nepal Oil Corporation (NOC) on Sunday slashed the price of aviation fuel sold to domestic carriers by Rs15 per litre to Rs118 per litre. The state-owned oil monopoly makes a profit of Rs43 per litre of aviation fuel sold to domestic carriers even after reducing the price.

The corporation has been adopting a cross-subsidy mechanism by increasing aviation fuel prices to stabilize prices of other petroleum products.

Airlines are required to slash the fuel surcharge when fuel prices drop by Rs4 per litre as per an agreement made between the Civil Aviation Authority of Nepal

(Caan) and the AOAN. They are allowed to increase the surcharge when fuel prices rise by Rs4 or more per litre.

“The lower fuel surcharges have led to a decrease in airfares as airlines have been struggling to attract passengers,” said Prajwol Thapa, senior marketing manager of Simrik Airlines.

Some airline officials said that the surcharge would be progressively reduced as the price of aviation fuel has dropped sharply. The last time domestic carriers had slashed fuel surcharges was on December 24, 2014 after NOC cut the price of aviation fuel by Rs10 per litre to Rs133 per litre.

Due to climbing fuel costs, airlines had frequently increased their fuel surcharge and its impact was visible on passenger occupancy. In the last two years, airfares have gone up by Rs2,000-2,500 on long-haul routes and Rs700-1,000 on short-haul sectors. Adversely, Nepal’s domestic air passenger movement continued to shrink for three straight years, dropping 6 percent in 2014, mainly due to high fares. For example, flying to Dhangadhi from Kathmandu costs almost as much as flying to New Delhi on a low-cost airline.  

According to Tribhuvan International Airport (TIA), domestic carriers received 92,046 less flyers last year. These airlines carried 1.45 million passengers in 2014 against 1.54 million the year before. The figure includes the 26,256 passengers flown by the seven domestic helicopter companies.

Airlines saw a robust growth of 13 percent in 2008 which jumped to 33 percent in 2009 as they cut fares amid low fuel costs and stiff competition. Although passenger movement increased 12.83 percent in 2010, the growth rate started dropping in 2011 and has shown a negative growth since 2012.

Airline officials said that as fuel accounts for 30-35 percent of the total operating costs, it becomes the single biggest factor in losses if the fuel surcharge is not raised.

REVISED FUEL SURCHARGE

SECTOR            NEW FUEL SURCHARGE     REVISED AIRFARE

Kathmandu to

Lukla    $15    $159

Dhangadhi    Rs 4,570    Rs 10,825

Mountain flight    Rs 4,425    Rs 9,725

Nepalgunj    Rs 3,465    Rs 8,100

Bhadrapur    Rs 3,245    Rs 7,480

Biratnagar    Rs 2,725    Rs 6,495

Bhairahawa    Rs 2,430    Rs 5,690

Tumlingtar    Rs 2,430    Rs 5,175

Pokhara    Rs 1,990    Rs 4,390

Janakpur    Rs 1,770    Rs 3,875

Bharatpur    Rs 1,545    Rs 3,370

Simara    Rs 1,325    Rs 2,665