Airfares are set to rise ahead of the peak travel season as jet fuel prices have surged for the third consecutive month, including a 14.12 per cent increase on September 1. This, combined with the ongoing weakness of the rupee against the dollar, is expected to lead to a five per cent increase in airfares during the upcoming (Q3) traditionally high-demand quarter. Additionally, the grounding of airlines like GoFirst and recurring engine issues may dampen the festive cheer for air travellers.
Over the past three months, ATF prices have risen by around 24 per cent, impacting airlines’ operational costs and potentially leading to higher airfares. Oil companies announced an average 14 per cent increase in jet fuel (ATF) prices on September 1. This brings the ATF price in Delhi to ₹1.12 lakh per kilo litre, the highest since December 2022. There have been similar rises in other metros including Mumbai and Kolkata.
A search for frequented routes between Delhi-Mumbai or Delhi-Bengaluru for the upcoming week showed that the airfares were ₹5,600 and ₹5,300 respectively, about ₹200-300 higher than usual.
Players like yatra.com said that the demand generally peaks by the first week of September for the festival season. “For this period airfares are already higher by at least 10 per cent,” a company spokesperson said.
With the ongoing lean season, airlines will be in a predicament whether to pass the price increase or absorb it to maintain the ticket price, according to Jagannarayan Padmanabhan, Senior Director and Global Head for Transport Logistics and Mobility, Crisil. “With the upcoming festival season and with more capacity coming in, the margins of airlines will be under pressure. To maintain the same margin I expect about five per cent increase in air fares,” he added.
Airlines allocate 30-40 per cent of expenses to fuel costs, with 35-50 per cent of operating expenses, including leases, fuel, and maintenance, in US dollars.
“Higher the (ATF) price, bigger the impact on cost. With the duopoly (between IndiGo and Air India) they will pass on the increase to customers,” said an industry expert requesting anonymity.
However, an official with a low-cost carrier countered, stating, “We will have no choice but to pass on the prices to the customers as our margins continue to be skewed.”
The weakening of the rupee against the dollar, with a 3.6 per cent decline in September ‘22, 4.9 per cent drop in August ‘22, and a 4 per cent decrease in July ‘22, continues to be a concern.
Some airlines have foreign currency debt. While domestic airlines have a partial natural hedge on fuel to the extent of earnings from their international operations, overall, their net payables are in foreign currency. However, recovery in international travel lags, with an average of 43.8 million km per month in 2023, down from 45.6 million in 2019. This meant that the possibility to recover costs from international operations too remained bleak.
Experts noted that thus, airfares may continue to remain elevated all through Q2 and Q3 of FY24.