The latest hike in jet fuel prices may further increase airfares in the coming days as airlines spend more on customers. However, the sharp increase could dampen the passenger traffic which has seen steady growth over the past few months. the mint explains
How much have jet fuel prices increased?
The price of aviation turbine fuel (ATF) is linked to global crude oil prices, and is revised every fortnight. It touched a new record on 16 May, rising 5.29% 1,23,039.71 per kiloliter (kl) in New Delhi. ATF prices in the national capital on May 2 were at 1,16,851.46 per kiloliter. This is the highest ever price for an ATF, which has seen 10 consecutive increases since the beginning of 2022. ATF prices, which vary by city due to state taxes, have risen by about 55% since January 1. In Mumbai, it is currently located 121,847.11 per kiloliter; in Chennai 127,286.13 per kiloliter; and in Kolkata 127,854.60 per kiloliter.
What is behind this rapid growth?
ATF prices are tied to global crude oil prices, and have risen steadily due to the Russia-Ukraine conflict, which has driven Russian oil off the market. Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have refused to increase oil production, further pushing up prices. However, an economic slowdown in major economies such as China, which is one of the largest importers of oil, could lead to a fall in oil prices in the future. Any chances to ease higher oil prices will also depend on the outcome of the Russia-Ukraine crisis, expected by the end of the year.
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How are Indian airlines affected by this growth?
ATF makes up 30-40% of the cost of running an airline in India, and an increase in its prices will hurt profit margins, unless the airlines pay the cost to fliers. Airlines have suffered huge losses in the last few quarters due to the COVID-19 pandemic. The depreciation of the rupee has affected them further, as a major part of their cost is borne in US dollars.
How will this affect the passengers?
Passengers will have to pay far more for the ticket. There has been a rapid increase in airfares in 2022. As things stand, average domestic airfares in May have increased by about 30%-40% over fares in January, while airfares on some popular routes have increased by more than 50% during this period. For data from online travel company Ixigo. Domestic airfares on popular routes have increased by 50-75% in May as compared to the year-ago period. Meanwhile, international airfares on some popular routes have gone up by 45-50%.
Will the increase in airfares affect demand?
Domestic passenger traffic continues to grow. Domestic air passenger traffic during the first 15 days of May, up 7.5% from the same period in April, is the best ever recorded during the first half of any month in the past two years, according to data collected by aviation website Network Thought. Airline executives are wary that a further hike in airfares could hit demand as a large segment of the domestic passenger base is price conscious. Experts also say that a section of air travelers may shift to rail and road transport.