NEW DELHI: The Russia-Ukraine conflict is set to have a negative impact on oil-dependent aviation and auto sector. For airlines, ATF or jet fuel accounts for up to 40% of operating costs. At Rs 90,519.8 and Rs 88,987.2 in Delhi and Mumbai, respectively, the prices of jet fuel is already at a record level and a further increase will be a very unwelcome sign for the industry as well as consumers.
“Brent crude prices have averaged at about $90 per barrel so far in Q4, as against $79 per barrel in Q3, and is expected to go up due to Russia-Ukraine tensions. This will have an impact on domestic airlines’ CASK (cost per available seat kilometres) which has just started to see recovery from the third wave of Covid-19,” said a senior aviation analyst.
Rating agency ICRA in a recent note said that a major concern that continues to be a drag on the aviation sector is the aviation turbine fuel (ATF) prices, which have seen a sharp increase of 59.9% on a Y-o-Y basis till Feb 2022. “It is mainly attributed to increase in crude oil prices. This, coupled with relatively low capacity utilisation of aircraft fleet, will continue to weigh on the financial performance of Indian carriers in FY22,” it added.
However, it is the foreign airlines, especially the ones operating in Europe, which will face maximum damage. At present, they are not allowed to fly over Ukrainian and neighbouring nations’ airspace. High oil price, poor passengers traffic and a prolonged war can prove to be too fatal for airlines. As for Indian carriers, only Air India and Vistara fly to Europe.
The conflict can also impact tourism sector, especially when India is about to resume regular operations of international flights. “It will not only impact charters from the region but will also impact other outbound and inbound travel from the region to India and will create an uncertain outlook in the eastern Europe region and Asia,” said Aashish Gupta, Consulting CEO, FAITH.
While the four-wheeler industry can survive the price hike to some extent with limited impact, it is the price-sensitive two-wheeler industry that would face maximum heat.
Jet fuel price at record level in India
For airlines, ATF or jet fuel accounts for up to 40% of operating costs. At Rs 90,519.8 and Rs 88,987.2 in Delhi and Mumbai, respectively, the prices of jet fuel is already at a record level.