Airfare may not rise on aviation fuel hike

Jet fuel prices were raised 9.2 per cent  to Rs 46,729 per kilolitre from Tuesday midnight, in line with the rising crude oil price. While  the current jet fuel rate is up 17 per cent since January, it is still 12 per cent lower year-on-year.

An immediate rise in fares is  unlikely, due to growth in capacity in the domestic market, aviation sources said.  In the current summer schedule, domestic carriers will be operating 19 per cent more flights than in the same period last year.

From January, IndiGo added 135 flights, raising its capacity at Bengaluru and Delhi airports. In FY17, it is adding 29 aircraft; collectively, airlines are expected to add about 50.  Vistara is increasing its flights by about 90 per cent this summer, albeit from a smaller base.

Fares  are 15-20 per cent lower from a year before and driving 20-plus per cent traffic growth. The fares for immediate or next-day travel are lower on certain routes, compared to last year.

The second quarter (July-September) is traditionally a low season for air travel and executives will have to factor seasonality impact while revising fares.

“Fares in the airline industry are not simply a function of input costs. Competition, price sensitivity of consumers and the demand/supply balance are also significant drivers,” said Vistara’s chief strategy & commercial officer, Sanjiv Kapoor.

Sharat Dhall, president of Yatra.com, feels  the increase in jet fuel price might result in a rise in airfares but cautions this would then dampen travellers in planning trips.

The fuel price rise will hurt  as a weak rupee has already led to an increase in non-fuel costs for some airlines. In the March quarter, Jet spent 19 per cent of its revenue on fuel, down from 26 per cent a year earlier; IndiGo spent 25 per cent, from 31 per cent earlier.

“Airlines need to ensure adequate liquidity to protect themselves from unforeseen shocks such as demand slowdown or sudden spikes in jet fuel prices, which can put negative pressure on operating cash flows. The challenge is maintaining a pricing discipline under competitive pressures and possible cost headwinds,” said  Subrata Ray, senior vice-president, ICRA Ratings.