NEW DELHI: In yet another blow to flight passengers, airfares are expected to go up by as much as 15% after oil marketing companies decided to increase jet fuel, also known as aviation turbine fuel (ATF), prices by 16% on Thursday.
The price of ATF has been hiked by 16.3% to an all-time high of Rs 1.41 lakh per kilolitre in Delhi. ATF price has nearly doubled in calendar year 2022, up 91% in the past six months and 120% since June 2021, Ajay Singh, Chairman and Managing Director of SpiceJet, said,
“The sharp rise in ATF and depreciation of rupee have left domestic airlines with little choice but to raise fares and we believe that a minimum 10-15% increase in fares is required to ensure that cost of operations are better sustained.” While this announcement came from SpiceJet, other airlines are also expected to go for a similar hike to keep their cost in check.
Singh added that the increase in ATF prices is not sustainable and governments - central and state - need to take urgent action to cut taxes on the fuel. ATF is linked to global crude oil prices, which have been rising due to the Russia-Ukraine war. Adding to it, India has one of the highest taxes on fuel globally. Singh said they have in the past few months tried to absorb as much of the burden of fuel price rise, which constitutes over 50% of their operational cost. “Weakening of the Indian rupee against the US dollar further impacted airlines as our substantial cost is either dollar-denominated or pegged to the dollar.”
This is a big blow to passengers who are already finding it difficult to book tickets at current prices. According to travel agents, airfares have seen a minimum hike of 40-50% in this calendar year alone compared to pre-covid times. The fare hike is steeper on international routes.
This continuous hike in airfares may impact the tourism industry in future even as at present the sector is benefiting from ‘'revenge travel' by people locked in for nearly two years due to the Covid-19 pandemic.
“Despite increases in ATF pricing, travel sentiment is at an all-time high and we are witnessing strong continuum in demand from both - our corporate and leisure segments,” said Indiver Rastogi, President & Group Head – Global Business Travel – Thomas Cook (India) & SOTC.
Rastogi added that their corporate travel business has seen a surge with a doubling month-on-month and they are currently running at over 90% of pre-Covid levels, reflective of the growing appetite. Also on the domestic travel front, we have already surpassed our pre pandemic numbers and customers continue to make most of the extended holiday season, he said.
Sabina Chopra, co-founder and COO, Corporate Travel and Head Industry Relations, Yatra.com, also said that with the ease in restrictions and opening up of international borders, travel is slowly on the pathway to meet the pre-COVID levels in terms of demand.
Commenting on rise in ATF prices, Chopra said that this brings one of the biggest challenges for the aviation sector, as it is one of the major factors impacting the operational costs for airlines.
"There is a pent-up demand for summer vacations domestically and to international locations and with ATF prices going up, this has a direct impact on airfares across markets. We at Yatra.com have witnessed a 30-40% rise in airfares in the last two months with demand subdued for the month of June. On the international travel front, since airlines are not operating at full capacity on all routes, the fares have continued to rise," Chopra said.