: Air fares to go sky-high as jet fuel prices rise further #FinanceIndia #StockMarketNEWS #Business Indo-Asian News Service New Delhi Exorbitant jet fuel prices on the back of high crude oil costs

@StockMarketNEWS Mon 21 Mar, 2022

Posted in: #FinanceIndia #StockMarketNEWS #Business

Air fares to go sky-high as jet fuel prices rise further #FinanceIndia #StockMarketNEWS #Business
Indo-Asian News Service

New Delhi

Exorbitant jet fuel prices on the back of high crude oil costs are expected to drive up domestic air fares from their current levels.

In recent days, fares have risen by around 20-25% on most domestic routes on a month-on-month basis. With ATF prices being hiked to over Rs 1 lakh per kilolitre, fares are expected to rise further.

“This time the industry had already braced for an ATF price hike, with most of the airlines hiking fares on certain legs by about 20-25% in the past couple of days,??? said Aloke Bajpai, Co-founder and Group CEO, ixigo.

“However, despite rising airfares, demand for travel for the upcoming summer season is still going strong. We have seen an average Month-over-Month increase of 35-40% in travel search queries in March for popular leisure destinations like Goa, Port Blair, Amritsar, Varanasi, Srinagar and Andaman and Nicobar,??? Bajpai added.

Presently, fuel-based expenses account for around 40% of the overall operating cost of an airline.

Significantly, the trend will hamper air passenger growth for the industry.

Besides, the rise in ATF prices might derail the economic recovery of India’s aviation sector, which has been heavily battered by Covid-19 restrictions.

“ATF constitutes about 40% of the operating cost of an airline, and the recent hike of 18% in ATF will put significant margin pressure on the airlines. The impact of this will be seen in increase of ticket prices, and we should see an upward revision of 5-8% in air fares,??? said Jagannarayan Padmanabhan, Director and Practice Leader, Transport and Logistics, CRISIL Infrastructure Advisory.

“This has come at a time when the industry was coming back to normalcy and the increased fare could prove to be a dampener for leisure travellers,??? Padmanabhan added.

According to Suprio Banerjee, Vice President and Sector Head, ICRA: “ATF represents the single-largest cost element for airlines, accounting for 30-40% of their total operating expenses. As such, the profitability of the airlines is significantly linked with ATF prices, which have witnessed consistent rise and have risen 57. 2% in March 2022 on a YoY basis.

“With limited pricing power of the airlines, and given the stiff competition with passenger traffic still in recovery mode, the rise in ATF prices is certainly going to impact the earnings profile adversely in the near term. ??? In India, the domestic ATF prices are derived from international fuel prices, denominated in the US dollar, thereby rendering the ATF prices susceptible to exchange rate movements.

Notably, the rupee has also seen depreciation against the US dollar lately, which has been reflected in the prices.