Get ready for more air fare increases

Leading Indian carriers said more air fare increases are possible soon because airlines have still not been able to sell tickets at a fare that meets their costs.

Sources in SpiceJet said the increase in basic air fares announced yesterday would meet only half the increase in cost per seat so the airline has to look at ways to increase fares, especially if oil prices went up again.

"We have not been able to make an assessment of how much our yields will exactly increase as a result of these fare increases. We will be able to take a firm decision only after the fares are in the market for sometime," said Samyukth Sridharan, chief commercial officer, SpiceJet.

"But going by the current situation, we might increase our fares as soon as next month if further increase in oil prices are announced by the end of this month," he added.

According to Jet Airways CEO Wolfgang Prock-Schauer, "The last increases in ATF prices from March till June have added $100 million a month to out costs, amounting to $1.2 billion annual costs for the industry as a whole just on this one head."

Airlines are finding it difficult to make good or compensate this cost from revenues, he added.

State-owned carrier Air India, which too raised fares yesterday, is also worried. "The situation looks quite bad as of now. And we will have to increase our ticket prices in line with the rest of the market if there is another oil price increase," said Anita Khurana, director, commercial, National Aviation Company of India Ltd (NACIL), the company formed after the merger of Air India and Indian Airlines.

Airline companies said they were treading a very thin line since rising fuel prices had dramatically increased their costs but fares could be raised cautiously so that the industry did not face de-growth.

"It is not possible to make good or compensate the losses with a rise in fares since a steep increase will lead to negative growth," Prock-Schauer said.

Last year, the market grew 30 per cent mainly on the back of cheap fares. This year, with oil companies raising aviation turbine fuel (ATF) prices 18 per cent, airlines were forced to raise fares 10 per cent, causing domestic passenger growth to slow to 11 per cent.

Air ticket prices, inclusive of the basic fare, fuel surcharge and other taxes have increased by around 140 per cent for long-haul routes and more than double for short-haul routes from the beginning of 2007 till now. The most recent increase of around 5 to 20 per cent was announced yesterday.

Vijay Mallya, promoter, Kingfisher Airlines, had said an airfare increase was inevitable. "If ATF prices are raised further we will have to raise fares again," he said after a meeting of airline companies a few days ago.

However, at projected losses of $2 billion for the industry for 2008-09, India would account for 34 per cent of the total estimated global losses, even as it accounts for 2 per cent of the global aviation industry.

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