Airlines may go for another round of fare hikes to offset the cost of rising fuel prices, a senior executive of a private airline said on Wednesday.
This was in response to state oil marketing companies decision to increase the price of aviation turbine fuel by 18 per cent to record Rs 1.10 lakh for a kiloliter. Fuel accounts for over 40 percent of airline’s expenses and the latest jet fuel price hike will increase overall expenses of airlines by 7-8 per cent.
The latest hike in jet fuel price comes against the backdrop of Russian invasion of Ukraine. Russia is the second largest exporter of crude oil with a global share of 11-12 per cent. However, the country is now facing sanctions from multiple governments making trade deals difficult.
“There is a massive jump in fuel prices. Rupee too, has weakened against the dollar. Ticket prices have to improve. Fares for immediate travel are up 10-12 per cent over last month and should increase further,” he added.
The government has set minimum and maximum fares for domestic flights and these are applicable upto a fortnight. For booking beyond 15 days airlines are free to set their own fares. Fares for travel beyond 15 days are up by almost 30 per cent on some routes. Apart from cost pressure, strong demand too is driving up the fares.
“We note that this is for the first time in our assessment that air fares are 20% or more expensive than comparable 2 AC air-conditioned rail travel even for journeys planned more than a month out. In pre-Covid times, air travel used to be comparable to 2 AC rail fares two weeks out and 20-30 per cent cheaper 4-6 weeks out,” Kotak Institutional Equities Research said in its recent report.
It expects domestic airlines to persist with high current fares for some time before reassessing their pricing.