Average daily fliers increase but high jet fuel costs to be a dampener for airlines

Even as the average number of daily fliers has crossed 3 lakh, Indian airlines won’t benefit due to the increasing fuel prices.

For the first time since the beginning of 2022, the number of average daily fliers crossed 3 lakh passengers. In the first 10 days this year, the air traffic had dipped by a lakh amid the third wave of Covid-19. 

The research by ICICI Securities stated that the weekly average daily fliers stood at 3.16 lakh in the week ended (W.E) February 26, 2022 vs 2.96 lakh in the W.E. February19 ,2022. 

For W.E. February 26, the average number of daily departures improved to 2,257 from 2,214 in the previous week, and the number of fliers per departure increased to 140 from 138.

However, amid geopolitical crisis related to the Russian invasion into Ukraine has led to a sharp increase in the jet fuel cost to over $100 per barrel. On February 16, in notifications, oil companies had hiked jet fuel prices by about 5 per cent. These prices had hit a new record high. 

According to experts, if the distress continues, these costs are likely to go higher than the current rate. 

ICICI Securities’ researchers also stated that airlines tend to enjoy higher gross spreads, (revenues – fuel costs) when fuel prices are low. However, amid the current situation, “they are unable to completely pass on the rise in fuel prices through higher fares.”

In its report, the research firm explained that the current fare levels as on Q3 FY22, IndiGo’s Revenue per Available Seat-Kilometre (RASK) was ₹3.51. However, in the past, there has been a demand and supply mismatch. “As such, incremental scope to raise fares may be limited unless there is supply correction in the system.”

Experts speak

Speaking to BusinessLine, an aviation industry expert requesting anonymity explained that fuel costs are approximately 40 per cent of an airline’s cost. However, given that airlines are upgrading their fleet to a more fuel-efficient mix, which is helpful to them.

Not only that, the passenger load factor, too, is gradually increasing. He explained that “the more the PLF, the fuel costs are divided. Currently, the PLFs are getting better. In the near future, I do not see fuel costs impacting airlines, but it is a wait and watch situation for the next quarter.”

However, Nripendra Singh, research director, aerospace & defense practice at Frost & Sullivan, countered saying that the operational costs are going up, and “it doesn’t look like the crisis is going to get averted anytime soon. Oil nations will take advantage of this. So, it will definitely impact it.”

To subsidize this, there is a positive subsiding of losses because of PLF. “Only efficient revenue management will help the airline. Nonetheless, if one weighs operational costs versus PLF and the revenue management, I see a short-term deep impact, it may stabilize in the medium-term provided situations get better.”

COMMENT NOW