Jet fuel prices touch new high; SpiceJet says ‘minimum 10-15% hike in fares’ required

NEW DELHI: Flying could soon get even more expensive. Oil marketing companies on Thursday hiked aviation turbine fuel (ATF) by the steepest ever (in one go) 16.3% which now, for instance, costs an all-time high of Rs 1.41 lakh per kilo litre (kl, or 1,000 litres) in Delhi.
Coupled with a weaker rupee, the operating cost for Covid-ravaged airlines has shot up, some of whom now say airfare hike is inevitable to survive.SpiceJet CMD Ajay Singh has termed these ATF prices “not sustainable” and said an immediate “minimum 10-15% increase in fares is required”.
Comments from other airlines were sought and awaited till the time of going to press.
“ATF prices have increased by more than 120% since June 2021. This massive increase is not sustainable and governments, central and state, need to take urgent action to reduce taxes on ATF that are amongst the highest in the world. We have in the last few months tried to absorb as much burden of this fuel price rise, which constitutes more than 50% of our operational cost, as we could,” Singh said.
In a statement, India’s biggest airline (by passenger carriage) IndiGo said: “Given the constant increases in crude oil prices (today by 16.3%) and depreciation in the rupee, we believe that the situation is unfavourably impacting the aviation sector as it constitutes almost half of any airline’s operational costs. This is the tenth straight increase since the start of 2022.”
“To facilitate recovery of the aviation sector and to make flying viable for everyone, we would request the Government to at least bring ATF under GST so that the benefit of input tax credit can be availed. Recently, the Jharkhand government had slashed VAT on ATF to 4 per cent from 20 per cent. We believe measures such as these will help the aviation sector recover quickly,” IndiGo said.
To be sure, airfares have been high for past several months due to the double whammy of ATF hitting new highs month after month and the rupee getting weaker by the day. Higher fares have, in turn, affected the post-reopening growth in air traffic thereby prolonging domestic fare bands that the government has said will stay till air travel revives on a sustained basis for a quarter.
High base price of ATF — its prices kept rising even as politically sensitive petrol and diesel are spared hikes — coupled with even higher rates of VAT and excise duty has made jet fuel for domestic flights in India among the most expensive globally. Neither have states with biggest aviation hubs like Delhi and Mumbai cut taxes, nor has the Centre given any excise relief so far.
On the other hand domestic fare bands, decided by the aviation ministry, applicable to tickets sold for flights within 15 days of departure from booking have not been revised upwards for many months now despite the relentless hike in jet fuel prices.
“The weakening of the Indian rupee against the US dollar further significantly impacts airlines as our substantial cost is either dollar denominated or pegged to the dollar. The sharp increase in jet fuel prices and the depreciation of the rupee have left domestic airlines with little choice but to immediately raise fares and we believe that a minimum 10-15% increase in fares is required to ensure that cost of operations are better sustained,” the SpiceJet promoter said.
While no Indian airline (except IndiGo) had a healthy balance sheet in the past few years, the pandemic’s crippling blow had left them all struggling to survive. Russia’s war on Ukraine — leading to fuel price hike and weakening of rupee vis-a-vis the dollar — have added to their woes.
“Airlines are not a cost plus industry. We have hardly passed on half of the enhanced increase in operating cost to passengers. Due to the increased fares, the recover in domestic traffic has taken a hit. Till the six metros reduce ATF price, not much will change for airlines in terms of survivability,” said an airline official.
“The Rupee weakening against the dollar by every Re 1 means an enhanced expense of Rs 75-80 crore for a mid-size airline and Rs 150-200 — crore for a large airline in India. About 65-70% of ours costs are dollar-denominated like aircraft lease/maintenance, foreign stations and GDS,” said another airline official.