NEW DELHI: After witnessing a 10%-30% jump in the last one month, airfares are likely to increase more in the near future as Jet fuel prices on Wednesday were hiked by over 18% - the steepest ever increase and overall sixth increase this year. Aviation turbine fuel (ATF), also known as jet fuel, was hiked by Rs 17,135.63 per kl on Wednesday to Rs 110,666.29 per kl in the national capital.
A senior executive of an airline said one-way airfare in busy sectors such as Delhi-Kolkata which was about Rs 3,000 till last month (for flights that would take off after a fortnight) has shot up to about Rs 4,300. “With this exorbitant hike, we may have very limited options but to pass it to passengers,” he said. The ongoing Russia-Ukraine conflict is having a very troublesome effect on global oil prices.
The increased sanctions on Russia, a major exporter of oil to India, has made a trade with the nation difficult, especially when the European Union has barred seven Russian banks from the SWIFT financial transaction messaging system.
Sumit Singhania, Partner, Deloitte India said, “In the short run, the passengers may have to deal with a spike in airfares, for both domestic and long haul international flights. It will be critical from here to see if the geopolitical situation improves dramatically to ease the price pressure. From the government intervention standpoint, reforming ATF taxes will be key as well.”
Suprio Banerjee, Vice President & Sector Head, ICRA, said that ATF prices will hurt the airlines most as it represents the single largest cost element for them, accounting for 30-40% of their total operating expenses. He added that the domestic ATF prices are derived from international fuel prices, denominated in USD, thereby rendering the ATF prices susceptible to exchange rate movements, wherein the rupee has also seen depreciation against the dollar lately.
According to Banerjee, airlines at the moment have limited pricing power given the stiff competition and passenger traffic still in recovery mode. In the past two weeks, the price of crude oil rose as much as $139 a barrel. However, it slowed down in recent days and on Wednesday it was trading around $102.7 per barrel, which is still 30% higher than early January 2022 prices.