Fuel cost dampens tourism growth

Despite the recent decrease in global oil tariff, Nepal Oil Corporation (NOC) this week decided not to reduce prices of petrol, diesel and Aviation Turbine Fuel (ATF), saying it needed to make up for previous losses.

However, high fuel costs have had a dampening effect on aviation which in turn has affected the revival of post-Covid tourism in Nepal. International airlines serving Kathmandu say they can add frequency, but are deterred by fuel costs, as well as high ground handling and landing charges at Kathmandu airport.

NOC officials say this is because of the need to bring the fuel in tankers from refineries in India, and also due to a hefty government petroleum tax. They also regard flying as a luxury, and say the high prices are needed to subsidise the cost of LPG and diesel in Nepal.

“This is absurd, maintaining high fuel costs is just so NOC can distribute bonuses to staff, and it subsidises LPGs so rich Nepalis can use garden heaters,” scoffs one airline executive. “High fuel cost has a knock-on effect on inflation and the economy. And with bus passengers now travelling by plane because of bad roads, it is not just the rich who fly on domestic flights anymore.”

ATF at Kathmandu airport is one of the highest in the world, and is double the cost of refuelling for airlines in New Delhi or Bangkok. Which is why even Nepal Airlines fills up the tanks of its aircraft in Dubai, Doha or Delhi and only tops it up at Kathmandu for its subsequent flight.

ATF costs $977 per tonne in Bangkok, about $900 in New Delhi and Colombo, while it is a whopping $1,850 in Kathmandu, even with discounts.

The hardest hit are airlines that fly long-haul routes from Seoul, Istanbul or Kuwait, and which have to fill up in Kathmandu for the return flight. Fuel is at most 40% of the operational cost of the offices of most international airlines, but for some airlines serving Kathmandu it can be as high as 73%.

Fuel cost and low profitability are the main reasons these airlines do not want to increase frequency to Kathmandu despite passenger demand, and this is affecting tourism arrivals in Nepal.

An Airbus 330 or Boeing 777 on a 7-hour flight from Kathmandu to Incheon or Istanbul burns 40 tonnes of fuel which costs about $80,000 in Nepal. In addition, aircraft on a holding pattern for one hour at Kathmandu airport due to air traffic congestion would waste fuel worth more than $10,000. 

Outgoing international flights also have to wait more than one hour for takeoff clearance, which means many passengers miss their connecting flights, adding to the burden on airlines.