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Airlines seek to increase fares as jet fuel prices rise again in March

Mumbai-Delhi fares may go up by 15-20% as soon as mid-March, experts said, adding that increases are inevitable given the rise in global oil prices.

March 07, 2022 / 05:51 PM IST
Representative Image

Representative Image

Airlines in India have once again urged the civil aviation ministry to increase caps on domestic fares, given the sharp rise in prices of aviation turbine fuel over the past two months and expectations that crude oil prices are expected to remain high due to the Russia-Ukraine conflict.

ATF prices, one of the biggest cost components for airlines, have climbed 26.4 percent, or Rs 19,508.25 per kilo-litre (kl), since December 15 in New Delhi. The latest increase of 3.22 percent on March 1 took ATF to Rs 93,530.66 per kl in the national capital.

Experts and industry officials expect airlines to hike airfares on popular tier-I routes by 15-20 percent by mid-March and by 20-25 percent on regional routes by the end of March.

“The airfare range for flying between Delhi and Mumbai is likely to rise from around Rs 2,300-13,000 currently to around Rs 2,900-15,000 by March,” a senior airline official said.

“Price hikes are inevitable – there is no way to refrain from price hikes if crude keeps rising due to the ongoing conflict in Europe,” an airline executive told Moneycontrol. He added that most airlines are in talks with the government to once again hike airfare bands for domestic tickets.

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The civil aviation ministry set upper and lower airfare limits as a temporary measure under the Aircraft Act, 1934, in the wake of the pandemic. The fare bands are aimed at protecting the interests of travelers and airlines and have been revised from time to time. Air fares were hiked four times by the government in 2021.

 

Operational difficulties

Fare caps are currently applicable on a rolling basis for a 15-day cycle, which means airlines are free to set prices of tickets beyond a 15-day period from the date of booking.

Experts said it has become difficult for airlines to maintain operating efficiencies under the current fare caps, given that ATF accounts for 30-35 percent of operational costs.

Airlines in India are also hoping that ATF will be included in the goods and services tax regime to lower their burden.

“The only sign of relief from rising ATF prices can be seen in the form of a reshuffling in the way jet fuel is taxed in India,” another senior airline official said, adding that high jet fuel prices can be harmful for the Indian industry with competition expected to increase as more airlines prepare to start operating in the upcoming summer schedule.

Spokespersons of IndiGo, SpiceJet, GoFirst, Vistara and AirAsia India didn’t offer comments on the impact of oil prices on airfares.

Domestic aviation was severely impacted by the pandemic over the past two years. Airlines are operating at about 85 percent of pre-Covid levels, while ATF prices have risen by more than two-fold over the past two years.

Credit rating company ICRA said the domestic aviation industry may report a net loss of Rs 25,000-26,000 crore in 2021-22 amid a sharp rise in crude oil prices and a recovery hindered by a recent wave of the pandemic.
Yaruqhullah Khan
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