Rising crude prices may affect aviation sector

Mumbai: In mid-2008, several airlines preferred to ground their planes rather than flying them at high costs when international crude oil prices hit an all-time high of $147 a barrel, threatening their very existence. Today, after more than 24 months, a similar situation is set to grip the sector, if things are not controlled.
The international price of crude oil is again steadily rising, and has already crossed $91 (Rs 4,076.80) a barrel, surging by more than 30 per cent since September 2010.
According to oil analysts, crude prices could hit $100 a barrel by the end of 2011, backed by heavy buying by US funds and rising demand from India and China. And if this psychological mark is breached, it could jeopardise growth prospects in Indian aviation sector, contend analysts.
“At current prices ($91 a barrel), there is not much concern. But the trend is alarming,” said Ankur Bhatia, managing director, Bird Group, an aviation and hospitality consulting firm. “I believe airlines will handle the situation by increasing their fuel surcharge. In the recent past, we have seen fares skyrocketing, backed by heavy demand. Flyers would not mind and shell out extra. But too much increase in fares would affect growth.”
Since the beginning of 2010, the Indian aviation industry has been on a revival path, with passenger numbers growing by 18 per cent against the previous year. And for 2011, the growth is forecast to be around 20 per cent, backed by a possible 9 per cent growth in the Indian economy. Under such circumstances, the hike in oil prices could act as a deterrent to the growth momentum when airlines would pass on the extra financial burden to passengers to minimise their losses.
05/01/11 Lalatendu Mishra/Tehelka.com

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Categories: Indian Aviation- In General Jan 2011