Thursday, March 17, 2022

Scaling new highs: ATF past Rs 100,000-mark for first time in history

Mumbai/Chennai/New Delhi: There can be relief for airlines as retailers feel that jet fuel prices will soften over the next fortnight. The price of jet fuel saw a spike of over 18 per cent on Wednesday, breaching the Rs 100,000-mark for the first time in history.

However, airline executives said it will not be possible to pass on such an increase to customers as fares have already been increased over the last two-three weeks.

“We would ideally want to pass on the increased cost but it will not be possible without hitting demand. Hopefully, with the opening up of international flights, the traffic flow will increase to absorb this increment,” said an executive of an airline. The executive added that major metro routes may see a hike of around 4-5 per cent for bookings beyond 15 days.

The three fuel retailers — Indian Oil Corporation (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum Corporation (BPCL) — are seeing this as a temporary rise, triggered by the Ukraine crisis in the last 15 days and subsequent hike in global crude prices.

Aviation turbine fuel (ATF) was seen at Rs 110,666.29 per kl in the national capital based on the latest price notification. It is up 18.3 per cent or Rs 17,135.63 per kl.

The latest hike in jet fuel price comes in the backdrop of Russian invasion of Ukraine. Russia is the second largest exporter of crude oil with a global share of 11-12 per cent.

However, the country is now facing sanctions from multiple governments making trade deals difficult.

A senior BPCL official told Business Standard that during the last seven days, there is a good improvement in prices that are on the downside. Next fortnight, the prices will soften, he added.

“The cracks also came down significantly and even crude prices have softened. It is expected to be below the Rs 1-lakh-mark during the next fortnight,” he said.

Jet fuel prices are revised on the first and 16th of every month based on the average international price of benchmark fuel in the preceding fortnight.

Another oil marketing company (OMC) official said the current hike was unexpected and was driven by the unanticipated war but added that prices will come down.

Historically, supply and demand have been the driver for higher fares.

Airlines reported their best three yields in FY13 (after Kingfisher Airlines grounding), FY15 (after SpiceJet’s cut in capacity post change of ownership) and in Q1 of FY20 (when Jet Airways shut operations).

Air fares are already high, primarily due to the government-mandated fare floors that regulate price beyond 15 days.

Market leader IndiGo reported a multi-quarter high yield of Rs 4.41, an increase of 19 per cent year-on-year (YoY) and 5.2 per cent sequentially.

17/03/22 Aneesh Phadnis Shine Jacob & Arindam Majumder/Business Standard

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