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Airfares likely to rise by 2-4 percent every month if jet fuel prices keep rising: Airline officials

Airlines might not increase prices all at once, partial increments of Rs 300-600 every month are likely to pass on the cost of rising fuel prices.

June 17, 2022 / 05:34 PM IST
Representative Image

Representative Image

Senior officials from domestic airlines in India say that prices of domestic tickets are likely to rise by 2-4 percent every month if the price of aviation turbine fuel (ATF) continues to rise, as has been the trend for the last year.

“Domestic airfares are already around 30 percent higher on average when compared to last year. And prices will likely rise going forward as jet fuel prices keep rising,” a senior official from low-cost airline GoFirst told Moneycontrol. He asked not to be identified.

He added that while airlines might not increase prices all at once, partial increments of Rs 300-600 every month are likely to pass on the cost of rising fuel prices.

Ajay Singh, chairman and managing director of budget airline SpiceJet, said the sharp increase in jet fuel prices and the depreciation of the rupee have left domestic airlines with little choice but to immediately raise fares.

“We believe that a minimum 10-15 percent increase in fares is required to ensure that cost of operations is better sustained,” Singh said, adding that the massive increase is not sustainable and governments, central and state, should take urgent action to reduce taxes on ATF.

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Fuel retailers revise jet fuel prices on a fortnightly basis. At present, fuel-based expenses account for over 35-50 percent of the overall operating cost of an airline.

India, currently, has some of the world’s highest rates of taxation on the ATF which massively drives up the fuel cost component.

However, industry officials are also wary that a sudden jump in airfares could affect the nascent recovery of the sector.

“If you look at the Delhi-Bombay route, an ticket average costs around Rs 4,700 to Rs 5,500 at the moment, which is much higher than the prices seen before the pandemic and even last year,” another senior official from a domestic airline said, seeking anonymity.

The average price of a one-way ticket between Delhi and Mumbai came for Rs 2,300-2,500 in June 2019. In June 2021, the average price of a one-way ticket between the two cities had risen to Rs 3,500- 3,800, historical data from airlines and online travel agents shows.

The official added that Indian airlines have already started feeling the pinch of rising airfares as the average number of domestic daily passengers has fallen from around 400,000 in April to around 350,000 in June.

“At Yatra.com, we have witnessed a 30-40 percent rise in airfares in the last two months with demand subdued for the month of June,” said Sabina Chopra, co-founder, and COO, corporate travel and head, industry relations, Yatra.com.

Market experts expect the rise in ATF prices to first be seen in the prices of tickets on regional routes.

They anticipate that airlines will hike fares on popular tier-I routes by around 5-10 percent in the next two months if fuel prices don’t fall, but expect a 20-25 percent hike in the ticket prices on regional routes by the end of August.

Compared to the same period last year, ATF prices have risen more than threefold from Rs 40,783 per kilolitre in January 2021 to Rs 1,41,232.87 per kl in Delhi on June 16, 2022, data from the websites of oil marketing companies shows.

Credit rating agency ICRA Ltd expects the domestic aviation industry to report a net loss of about Rs 25,000-26,000 crore during 2021-22 amid a sharp rise in crude oil prices and a recovery hindered by the recent wave of the pandemic. The agency expects the industry to require additional funding in the range of Rs 20,000-22,000 crore over 2021-22 to 2023-24.
Yaruqhullah Khan
first published: Jun 17, 2022 05:34 pm
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