A month ahead of Diwali, rising cost of aviation fuel is set to hit airfares. On Thursday evening, Indigo, India’s largest low cost carrier, made a significant announcement regarding fuel charges. In response to the surge in Aviation Turbine Fuel (ATF) prices over the past three months, the airline has decided to implement a fuel charge, starting from 00:01 on October 6th. The fuel charge will be applied per sector and will vary based on the sector’s distance, ranging from ₹300 to ₹1,000.

ATF prices in India have been on a steady upward trajectory, with a 5.14 per cent increase over the previous month and a 2.32 per cent increase compared to October 2022. To put this into perspective, as of October, the ATF price in Delhi stood at a staggering ₹1,18,199.17 per kilo-litre. This marks the fourth consecutive increase in jet fuel prices, which constitute a substantial 40 percent of an airline’s operating costs.

This surge in fuel costs has posed a significant challenge to airlines, as ATF accounts for a substantial portion of their operating expenses, prompting the need for fare adjustments. ATF comprises nearly 40 per cent of the costs of an airline.

“The decision follows the significant increase in aviation turbine fuel (ATF) prices, which have surged in the last three months with consecutive price hikes every month. ATF accounts for a substantial portion of an airline’s operating expenses, necessitating fare adjustment to address such a cost surge,” the airline said in a statement on Thursday. 

Fuel charges

Under the newly announced pricing structure, passengers booking IndiGo flights will now incur a fuel charge based on the distance of their journey. For sectors covering distances between 0 and 500 kilometers, the fuel charge will be ₹300. For distances spanning from 501 to 1,000 kilometers, the charge increases to ₹400. Travellers venturing between 1,001 and 1,500 kilometers will face a fuel charge of ₹550. As the sector distance extends from 1,501 to 2,500 kilometers, the fuel charge rises to ₹650. For longer journeys covering distances of 2,501 to 3,500 kilometers, the fuel charge is ₹800. Finally, for sectors beyond 3,501 kilometers, the highest fuel charge of ₹1000 applies.

Sources at SpiceJet have said that its fuel charges will be in line with IndiGo. Other airlines including Air India, Vistara and Akasa did not respond to BusinessLine’s query. Ministry of Civil Aviation too did not offer a comment before the time of press.

IndiGo emphasised its commitment to offering affordable fares to its valued customers and will publish a tariff sheet with sector-wise charges on its website. “IndiGo remains committed to offer affordable fares to its valued customers.” IndiGo will also publish the tariff sheet subsequently, with the sector-wise charges being published on the airline’s website, it added. 

“On an average this will imply an 8-10 per cent increase in the overall ticket cost. With the festival setting in, this increase can make family travellers reevaluate their mode of travel. We can see a moderation in traffic growth for the next quarter. On the flip side it’s good for the health of the airlines as fuel cost is about 50 per cent of the base fare of the ticket price,” Jagannarayan Padmanabhan, Sr Director at Crisil Ltd said.

The September 1st announcement alone saw a steep 14.1 percent increase (₹13,911.07 per kilo-litre), followed by an 8.5 percent increase ( ₹7,728.38 per kilo-litre) on August 1st. These frequent price hikes are significantly burdening airlines that are already facing financial challenges.

The weakening of the rupee against the dollar has further compounded the situation, with a 3.6 per cent decline in September ‘22, a 4.9 per cent drop in August ‘22, and a 4 per cent decrease in July ‘22. This combination of rising fuel costs and a weakening rupee is expected to result in a five per cent increase in airfares during the upcoming high-demand quarter (Q3).

In addition to the financial strain posed by these factors, the grounding of airlines like GoFirst and recurring engine issues in the aviation sector may dampen the festive cheer for air travelers. As a result, passengers can expect to see higher airfares in the near future, making travel during the festive season potentially more expensive than in previous years.