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Airfares set to soar on costlier jet fuel

Airfares set to soar on costlier jet fuel
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India’s delicately balanced current account wouldn’t be the only major casualty of costlier crude oil: Local travelers now have to pay more to fly within the country as expensive jet fuel propels airlines to raise domestic fares that had tracked global energy prices to plunge to record lows last year.

Higher consumer fares in January reflect the persistent rise in aviation-fuel prices, which increased 8% on-month in November at the New Delhi airport, the country’s busiest. After a brief lull in December, prices firmed in January and February, breaching the levels of 2015 when the cycle of declines began.

The trend has led carriers to pass additional fuel costs on to consumers, many of whom switched to airlines after the gap between air and upper-class train fares narrowed in 2016. A senior executive at Jet Airways, India’s second-biggest airline by market share, said the airline has recently revived the practice of levying a fuel surcharge — a fare component linked to movements in jet fuel prices — on domestic flights.

“We used to charge between Rs 100 and Rs 300 depending on short- and longhaul sectors. Now we charge as much as Rs 700,” he added. Jet-fuel is the biggest cost item for Indian carriers.

Prices of petroleum products began rising since last spring after the 2015-16 winter witnessed record lows for crude oil, with global prices breaching $30 a barrel on their way down to levels not seen since the 1980s. However, after a period of consolidation that analysts believed would have put many shaleoil producers out of business, global crude oil prices began firming and have now stabilized around $55 a barrel, a level that some believe would be maintained over the medium term.

Airlines had clubbed fuel surcharge with the base fare component in 2015 after an advisory from the Directorate General of Civil Aviation, the country’s aviation regulator. No-frills carrier SpiceJet has separated the two components over the last six months, although the fuel surcharge hasn’t been increased yet, said a spokesperson.

Travel company executives said overall fares have increased in January. According to data on Makemytrip, the country’s biggest online travel portal, average fares dropped in November and December but rose in January. Ticket prices for the Delhi-Mumbai sector rose to Rs 4,266 in January, compared with Rs 3,908 the same month last year, Rs 4,914 on the Mumbai-Bangalore sector compared with Rs 4,573 a year earlier, and Rs 4,473 on the Mumbai-Chennai route, compared with Rs 3,784 last January. Rival Cleartrip noticed divergent trends that showed those booking early stood to benefit. Last year, spot-booking fares too had fallen drastically.

“An analysis of the last three months of airfare data for the top 20 air travel sectors reveals that the increased cost to airlines, contributed by the fuel prices surge and the rupee’s depreciation, has resulted in a 15% increase in airfares for a booking window of 0-14 days,” said Samyukth Sridharan, president and chief operating officer of Cleartrip. “At the same time, we see that the airlines have been quite aggressive in offering deals to passengers who plan in advance, reflected in a 21% yearon-year drop in fares on an average for travel bookings made over 14 days in advance.”

Last year, airlines had offered substantial discounts across sectors and made attractive offers for ticket-buyers who planned their travel in advance, resulting in lower yields. To be sure, the industry’s ability to charge more will depend on the direction in aviationfuel prices and seasonal changes in air-travel demand.

“February and March are lean months, and the airlines may not have room to increase so much. But there will be increases subsequently if jet fuel prices continue their climb,” said a senior executive at a budget carrier.

SOURCE: Times of India

 

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