Prices of aviation turbine fuel (ATF), or jet fuel, will be hiked by 10% in March. This happens at a time when airlines, led by Jet Airways and IndiGo, are cancelling flights, though for absolutely different reasons. The combined effect, say airline officials, will be lower supply of seats that may enable them to hike fares to absorb increasing costs.
"ATF prices are up again by 10% effective (March). Not good for already struggling industry!" tweeted AirAsia India COO Sanjay Kumar, an industry veteran.
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Main reasons
A kilo-litre (KL) of ATF in Delhi and Mumbai for domestic flights costs Rs 58,060.97 and Rs 58,017.33, respectively. This ends a short declining trend seen from last November when the price was Rs 76,378.80 and Rs 76,013.2 in Delhi and Mumbai, respectively.
Jet has grounded 13 aircraft in past month due to default to lessors and some more are not flying for other reasons like snags or awaiting spares. IndiGo has cancelled flights till April due to pilot shortage.
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Bleeding airlines
The aggressive growth in last few years, amid a severe airport infrastructure crunch, has led to airlines bleeding badly with Jet and Air India struggling to survive. Rating agency ICRA recently said the three listed Indian carriers — Jet Airways, IndiGo and SpiceJet — lost Rs 20 crore per day in April-September, 2018, period. Collectively, Indian Airlines are likely to lose over Rs 8,800 crore in FY 2019, ICRA had estimated.
"We need to charge fares that at least cover our costs if we have to avoid meeting the fate of Kingfisher or Jet. This is already being seen and fares are climbing up in past few months, something that may accelerate after the sharp 10% ATF price hike in March,” said an official.
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Domestic air travel slows down
The rising fares have put brakes on the massive air traffic growth the country was seeing in recent years. The 11% growth in domestic air travel of November 2018 over November 2017 was the lowest year-on-year (YoY) increase recorded in India for the last 51 months. While to be sure domestic air travel has seen over 52 months of consecutive growth, the percentage is slowing down.
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Where's the profit
Despite the booming domestic air travel, Indian airlines are witnessing profit-less growth with fares being 10-15% below break-even levels.
"Mumbai-Delhi one-way fare is about $45-50. Similar distance San Francisco-Seattle route fares is 3-4 times higher. That is why airlines in US and Europe are profitable. In India, fares are 10-15% lower than break even levels. I asked airlines why don't they shed some growth by hiking fares to recover costs. They showed in real time that hiking fares by even Rs 200 meant losing prospective travellers to other cheaper airlines. Unless airlines as a whole have pricing discipline, it is not possible for a single airline to recover fares that cover costs as India is a very price sensitive market," Dinesh Keskar, Boeing’s senior VP (Asia Pacific & India Sales), had recently said.
