Thursday, February 24, 2022

Rising crude prices: Aviation sector facing headwinds

Hopes of recovery could hit an air pocket for airline companies, as the continuous rise in aviation turbine fuel (ATF) rates on the back of increasing crude oil prices, will hurt their financials. The surge in prices comes at a time when the operating and yield environment was improving for air carriers, as passenger load factors were picking up and revenues were stabilising.

Crude oil prices, which are now nearing $100 per barrel, remains a major headwind for the airline industry. The three months of January-March are traditionally soft for the airline companies, and this continuous rise in ATF could have a detrimental impact on this seasonally weak quarter thereby further straining their finances.

The sharp increase in jet fuel prices has continued over the past three months. In December, ATF prices were up 50% year-on-year and 13% quarter-on-quarter to average around Rs 78,000 per kilolitre. Brent crude prices were up 50% y-o-y and 43% year-to-date to $74/bbl. ATF prices were further hiked by Rs 6,743.25 per kilolitre or 8.5% to Rs 86,038.16 per kl in the national capital effective February 1. Last week again, the state-owned retailers revised the prices upwards by Rs 4,481.63 or 5.2% to Rs 90,519.79 per kl in line with the rise in oil prices.

The latest increase is the highest ever price touched by ATF. The rate is higher than Rs 71,028.26 per kl reached in August 2008 when international crude oil prices touched $147 per barrel. Brent crude oil was trading at $96.81 per barrel till press time, on Wednesday. Jet fuel prices are revised on 1st and 16th of every month based on average price of international benchmark in the preceding fortnight.

24/02/22 Shubhra Tandon/Financial Express

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