‘Jet fuel price hike may not impact airlines much’

Forum Gandhi Mumbai | Updated on June 16, 2020

The rise in aviation turbine fuel (ATF) price may not be much of a dampener for the struggling aviation industry because a 16 per cent increase in fuel cost translates to just a 5 per cent increase in airlines’ cost.

“Airlines in India can live with this. It’s not a huge impact. if fuel is 35 per cent of cost then a 16 per cent increase means a 5 per cent increase in total costs for the airline,” said an executive at IndiGo Airlines requesting anonymity.

The ATF price was hiked by ₹5,494.5 per kilolitre (kl), or 16.3 per cent, to ₹39,069.87 per kl, according to a price notification by state-owned oil marketing companies. This is the second increase in ATF price this month. Rates were hiked by a record 56.5 per cent (₹12,126.75 per kl) on June 1.

But Air Deccan founder Captain GR Gopinath, said that the government move could be the last nail in the coffin for airlines that are already struggling.

“In this situation, the chances of survival become very dim for the airlines which are already struggling. This also ends up impacting customers, and smaller businesses that rely on frequent travel in the near future.”

An industry veteran, who has worked with several airlines, said that the demand right now is fairly static and inelastic, ATF price increase can be passed through to customers by increasing fares. However, “beyond a point fare increase will decrease demand and hurt the ability of airlines to add flights that cover variable costs,” he explained.

This comes even as the passenger load factor for most airlines is less than 50 per cent. This reduced demand is forcing airlines to increase their airfares, too.

“Airlines fares have gone up recently. However we do not see a major dip in existing demand, as mostly stranded passengers are the ones travelling currently,” said Prashant Pitti, Cofounder, EaseMyTrip.

According to industry players, waivers on GST, taxes and a cap on ATF would be beneficial for airlines.

“The airlines already are facing losses. Internationally, too, governments have given a bailout package. On one hand, the government has been unable to provide that, on the other hand, the rise in ATF may come as a fresh blow for airlines,” said Captain Gopinath.

Published on June 16, 2020

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