SpiceJet’s Ajay Singh hints at higher fares this busy season

Ajay Singh, Chairman and Managing Director of low-cost carrier SpiceJet

SpiceJet Chairman and Managing Director Ajay Singh today indicated that airfares would rise ahead of the forthcoming busy season. The festival season, starting with Dussehra in October, typically marks the onset of the busy period for airlines that lasts till March.

A double whammy of a weak rupee and high oil prices has hurt the Indian aviation sector badly last six months, with many airlines in red.

“Yields will have to rise 10 to 15 percent to offset the higher costs,” Singh said today on the sidelines of a press conference called to announce the successful completion of a biofuel-powered SpiceJet flight from Dehradun to Delhi, a first in India. Singh did say that airlines were not being able to raise fares for the time being as the demand was weak.

While yields can get better with the help of reduction in costs as well, a 10-15-percent improvement in short-term can only come from a fare increase.

In less than five months, the rupee has weakened by around 9 percent to over 70 against the US dollar amidst a global rally by the greenback.

Similarly, crude oil prices have surged by more than half in a year to around $70 per barrel. Aviation turbine fuel, derived from crude, accounts for one third the cost of operations of an airline.

Weighed by the twin impact of a weaker rupee and higher fuel costs as well as one-time provision, SpiceJet posted a loss of Rs 38 crore in June quarter against a net profit of Rs 175 crore in the same period a year ago.

Rival InterGlobe Aviation’s net profit in the three months through June fell 97 percent to Rs 28 crore from Rs 811 crore a year earlier. If not for the finance income, income from sale and leaseback of aircraft and compensation by Pratt & Whitney, India’s largest airline company would have reported a loss. Pratt & Whitney compensated IndiGo in the said quarter for engine snags that led to the grounding of Airbus A320neo planes.

Quite clearly then, passengers should be ready to pay higher fares in next few months.