Jet fuel price up 6%; may lead to hike in airfares

Representative Photo: Reuters
State-run oil marketing companies on Sunday increased aviation turbine fuel (ATF) price by 6 per cent, the third straight rise since August. The revision adds to the cost pressure of airlines and could lead to rise in fares.

Also, cooking gas price was hiked by Rs 1.50 a cylinder in line with the government’s decision to raise rates every month to eliminate subsidies by March. A subsidised 14.2-kg LPG cylinder will cost Rs 488.68 in Delhi from Sunday, as against Rs 487.18 previously.

A kilolitre (kl) of jet fuel would cost Rs 53,045 in Delhi, as against Rs 50,020 earlier. On a year-to-date basis, jet fuel price is around 1 per cent higher, but it is 13 per cent higher on a year-on-year basis. 

“The (ATF) costs have gone up significantly, so this will see an impact on pricing soon,” a senior executive of a private airline said. Another executive said a fare hike was possible, though irrational competition made it harder to sustain. So far, no airline has notified an increase in fares.

The increase in crude oil prices and rupee depreciation have raised concerns regarding airlines’ profits as a 1 per cent change in the rupee and the crude (oil price) would have an impact of 4-5 per cent and 3-4 per cent, respectively, on earnings (other things remaining same), Santosh Hiredesai of SBICAP Securities wrote in an investor note.

Brent crude price touched a two-year high of $58.6 a barrel earlier in the week. “If crude prices ($58/barrel) and rupee (66/$) sustain at these levels, airlines would need to hike passenger fares by 5-6 per cent over last year to maintain unit profitability,” Hiredesai said. Also, airlines that have seen a capacity moderation due to Airbus A320neo engine issues would be better placed to pass on cost increases moving into a seasonally strong festival season, he said.

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