Soaring crude oil price makes air travel dear

Airlines in India have decided to pass on the rising jet fuel cost to travellers over the past few days, leading to a sharp rise in airfares. Prices are also expected to escalate as demand increases.

Geopolitical risks related to Russia’s invasion of Ukraine have contributed to higher crude oil prices with the benchmark Brent reaching almost $120 a barrel last week, the highest in more than eight years.

Aviation turbine fuel, which is derived from crude oil, has surged 63% over the past year to a record high. On March 1st, jet fuel price shot to 96,478 rupees per kilolitre.

The rate is higher than the previous record of 71,028 rupees per kilolitre reached in August 2008, when international crude oil prices touched $147 per barrel.
 
Fuel accounts for 35-40% of an airline’s operating costs.

The government has set minimum and maximum fares for domestic flights and these are applicable for up to a fortnight.

For bookings beyond 15 days, airlines are free to set their own fares.

According to data provided by travel portal Ixigo, for tickets purchased about 20 days in advance, …

…the average one-way fares on some of the top domestic routes have increased by up to 30% in the first week of March 2022 from a month ago.
 
A Delhi – Mumbai ticket which cost 4,055 rupees is being sold for around 5,119 rupees, an increase of 26%.
 
Similarly, ticket prices on the Delhi-Bengaluru route are up 27% and Kolkata-Delhi route are up almost 30%

Simran Singh Tiwana, chief executive of regional airline Star Air, told Business Standard, at current levels, airlines have no option but to pass on the higher cost of fuel to customers.
 
While short-term outlook for the industry is still positive, pricing on regional routes comes with its own challenges.
 
Anirban Sengupta, of travel management company 2HUB, told Business Standard that higher airfares will not dent the recovery as there is a strong pent-up demand. 
 
Business travel remains a weak spot, recovering only 50% of pre-pandemic levels.
 
India’s daily air passenger numbers are still 25% below the pre-Covid peak. Domestic air travel saw an uptick in February after a 42% month-on-month decline in January due to Omicron lockdowns.

Barring the Omicron disruption, air travel has been on a recovery path and in the coming days, this will be supported by leisure travel.

Ixigo is seeing a 35-40% increase in travel search queries in March to popular leisure destinations like Goa, Srinagar and Port Blair despite rising airfares.

However, the ability of airlines to pass on rising fuel costs will diminish if the recovery led by pent-up demand loses momentum, putting pressure on the already-stressed airline balance sheets. 

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