Oil prices have been rising to new highs in the last few years over global political uncertainties. The horrific images from Israel over the weekend have only added to the tensions and Israel’s resolve to launch operations deep inside Gaza only promises to make it worse for oil - a must want commodity which reached new lows at the beginning of the pandemic and has since seen new highs!
Any increase in oil prices does not bode well for the aviation industry in general and Indian aviation in particular. With India being an importer of oil, the increase in oil prices puts pressure on the finances.
The Aviation Turbine Fuel or ATF prices are steadily increasing after showing some signs of softening. As India went into Covid lockdown in March 2020, the price per Kilolitre of ATF in Delhi was Rs 56,859. The lack of demand led to a sharp drop in prices in subsequent months, reaching a low of Rs 22,544 in May 2020.
One thing has led to another, starting with pickup of demand for oil in 2021, followed by war in Europe in 2022 and the latest Israel conflict in 2023. The pre-Covid prices have been breached since early 2021 and in some months, even doubled those rates.
The peak price was reported in July 2022 at Rs 1,41,232 per KL (in Delhi). The current prices are 16 percent lower than the peak price, yet the pinch is felt harder because of the rupee which has slid by five percent during the same period.
The average ATF price this year has been north of Rs 1 lakh per KL, which was the case in 2022 as well. This may look like the new normal but a spike awaits, which may put additional burden on finances.
IndiGo has already started charging fuel charges on its tickets, a fixed fee depending on distance. Other airlines may either follow suit or increase their base fares.
09/10/2023 Ameya Joshi/Moneycontrol
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