The rise continues: Jet fuel prices hiked for the 11th month in a row

While most of the country is trying to battle the hike in petrol and diesel prices, the airline industry has arguably received the shorter end of the stick. Indian Oil Corporation, India’s largest fuel supplier, has hiked the aviation turbine fuel, or Jet fuel prices for the 11th month in succession. As on date, Jet fuel costs Rs 70, 028 per kilolitre (Delhi) – over 34% more than the average price last year. Also, this is the highest jet fuel rate since May 2014.

In the last three months, Brent Crude, the Asian oil-price benchmark, has increased by around 15 percent to reach $77 per barrel. Also, if we look at the average jet fuel prices per quarter, this is the highest average price in the last three years.

Fuel costs make up for around 33 percent of an airline’s operating costs. This continuous price hike can cause an impact on the airlines’ financials. Airlines have already started taking measures to offset this impact. Indigo, for example, India’s largest domestic airline, is charging a fuel surcharge of Rs 400 on every domestic flight ticket.

In the quarter ending March, the three listed aviation companies – Indigo, SpiceJet and Jet Group, experienced a drop in net profits. SpiceJet, due to a higher treasury income, was the less impacted of the three. This decline in profits was primarily due to a drop in the operating income or earnings pre-tax, interest, amortisation, depreciation and rent.

On the first of every month, state-owned fuel marketers revise the rates of Jet fuel based on the average international rates and the Rupee-Dollar exchange rate in the preceding month. While both these factors are beyond the direct control of the Government, it will be interesting to see what steps are taken to bring this incessant rise in prices under control.