Saturday, June 02, 2018

Airfares headed north as jet fuel costs hiked by 7.2%

New Delhi: The price of jet fuel was hiked by a sharp 7.2 per cent on Friday taking it to a four-year high which is likely to lead to higher airfares as domestic airlines will be forced to pass on the burden to fliers.

The price of jet fuel was raised by Rs 4,688 per kilolitre (kL) to Rs 70,028 per kL in Delhi, according to state owned oil firms.

This is the second straight increase in jet fuel rates over the past month. On May 1, the price was raised by Rs 3,890 per kL (6.3 per cent) to Rs 61,450 per kL. The two hikes have taken jet fuel rates to their highest level since May 2014.

Jet fuel, which accounts for 40 per cent of an airline's cost of operations, has spiked by nearly 30 per cent over the past year. In the last six months alone, the cost of the single largest component of an airline's total expenses has risen by about 25 per cent.

"Airlines will definitely increase airfares to offset the rising fuel cost. Fliers can certainly expect at least 5-10 per cent increase in fares soon," said D Sudhakara Reddy, national president, air passengers association of India.

Just on Wednesday, market leader IndiGo announced that it will reintroduce a fuel surcharge of up to Rs 400 per passenger on domestic routes, effective from midnight. Other airlines are expected to follow suit as there is no fear of losing market share.

Any IndiGo ticket you book now will carry a fuel surcharge of Rs 200 on short flights covering a distance of under 1,000 km, while flights on longer routes above this threshold will incur an extra charge of Rs 400 per passenger.

IndiGo, with a roughly 40 per cent share of domestic market and over 1,000 daily flights, is the first to reintroduce fuel surcharges. In April 2014, the airline had announced that it would merge fuel surcharge with the base fares in order to simplify the prevailing fare structure.

Airlines have also been losing money on account of rising fuel expenses. IndiGo's net profit plunged 73 per cent to Rs 117.6 crore during the January-March quarter of 2017-18 from Rs 440 crore in the corresponding period of the previous financial year.

Jet Airways posted a net loss of Rs 1,040 crore in the quarter as opposed to a profit of Rs 583 crore in corresponding period a year ago.

Meanwhile, SpiceJet, too, has reportedly said its bottom line was impacted by Rs 81.4 crore in the quarter ended March 2018, due to the hike oil prices.
02/06/18 Vidya S/India Today