IndiGo announces upto Rs 400 fuel surcharge to counter rising oil prices

IndiGo

IndiGo has announced a fuel surcharge of up to Rs 400 per passenger on domestic routes to counter the recent upward surge in oil prices, a move that would increase fares.

The surcharge will be applicable on domestic trips and it will be effective from the midnight of May 29. A sum of Rs 200 will be added on routes with less than 1,000 km distance, whereas an amount of Rs 400 on routes longer than 1,000 km, the airline said in a release.

"A marginal increase in airfares in the form of fuel surcharge will not have any significant adverse impact on the air traffic demand," the release said.

Aircraft fuel expenses account for around 40 percent of the airline's operational costs, making it the single largest item of its total expenses.

"Furthermore, the depreciating Indian rupee is an additional cost burden on Indian carriers. Given this scenario, levying a surcharge has become inevitable for a low-cost airline," it said.

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The airline also said it would review the surcharge in the light of oil prices going forward, and endeavours to be in a position to withdraw it once oil prices have moderated.

Over the last few months, crude oil prices have witnessed an unprecedented increase, touching a 4-year high of around $80 a barrel.

Several reasons behind the rise in international crude oil prices include the increased appetite for crude oil in recent months, impact of United States’ decision to exit the Iran nuclear deal, and the sanctions that are expected to be imposed on Iran as well as the shortage of supplies from Venezuela.

Consumption of oil across the globe during the January-March quarter increased by almost 2 percent year on year, which was primarily due to a spike in demand from US, China and other Asian countries.

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Iran currently exports around 2.5 million barrels of oil a day, which is roughly 4 percent of the world’s total supply. Experts believe the newly-imposed restrictions could bring this figure down by as much as 1 million barrels a day.

Also, worsening economic situations in oil-rich South American countries, and ageing, conventional oilfields have together resulted in Venezuela cutting its oil production significantly. This, in turn, has worsened the already-tight supply situation from OPEC (Organization of Petroleum Exporting Countries) while political instability in the South American nation surrounding its national elections is just adding fuel to a rapidly-growing fire.

IndiGo's Chief Commercial Officer Sanjay Kumar said with ATF prices in India having gone up by around 25 percent in the current month compared to the same period last year, the airline is compelled to pass some of the increased cost burden to customers as a fuel surcharge.

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"In the context of the past decade, where airfares in India have reduced by nearly 50 percent in real terms (i.e. adjusted for inflation), we are confident that this marginal increase in the form of fuel surcharge will not have any significant adverse impact on demand," he noted.

"We are hopeful that the 1.5 lakh plus passengers flying with IndiGo each day will continue giving us support," Kumar said.