Saudi oil crisis may push domestic air fares up by 10-15% by month end

Fares may rise sooner if crude oil price remains elevated, say airlines

Domestic airlines may have to hike fares two weeks ahead of the busy travel season if oil prices remain elevated over next few days.

"If the crude oil price keeps on rising we will have to decide on hiking airfares. We are closely monitoring the crude oil prices," a senior Air India executive said on Monday.

The national carrier, which is already struggling with its fuel payments, spends around Rs 6,000-7,000 crore annually on fuel. A 10 per cent hike in crude price would mean over Rs 50-58 crore of extra costs for the airline.

Crude oil prices jumped nearly 20 per cent today before settling down to a 10 per cent rise with disruption in oil supplies following a drone attack on facilities in Saudi Arabia.

"Average air fares may go up atleast 10-15 per cent from current level for travel in October-November. Fares are expected to increase from last week of September but if crude oil price remains elevated airlines may hike fares earlier," said an executive from a private airline. 

He, however, is hopeful that prices would stabilise over next few days. "Most airlines will be comfortable with crude oil price in range of $ 60-65 a barrel. There will be an impact on profitability in second quarter because of low fares but it will be better than last year," he reasoned.

Rating agency Crisil had last week projected ticket prices to rise 7-9 per cent this fiscal because of limited capacity addition since grounding of Jet Airways.

Crisil also forecast domestic passengers traffic to grow 6-8 per cent in FY20, as against a healthy 19 per cent growth registered in the year ended March 2019, on account of non-revival of Jet Airways, which ceased all operations in April due to liquidity crisis and is now under insolvency proceedings.

The 7-9 per cent expected the rise in airfares will be the highest since fiscal 2013, which had seen then Kingfisher Airlines going bust, it said.