Russia-Ukraine conflict may cloud skies for Indian aviation, warn experts

The Russian military action in Ukraine may stem recovery in the world’s third-largest domestic airline market if the crisis is not resolved early.

 

Since India curtailed international operations in March 2020, overseas flights from the country can only be operated under “transport bubbles”, a euphemism for temporary air travel accords. Earlier on Thursday, Air India suspended special flights to the Ukraine capital after reports emerged of the Russian air force bombing Kyiv airport.

 

Some industry experts said that it was still early to assess the full impact of the escalation.

 

“The real impact of the situation in Ukraine is yet to be ascertained. From an industry perspective, it will have consequences for international travel. However, domestic travel may not be affected to a great extent. A lot will depend on how quickly the government moves in to open up international travel from here on,” averred partner Deloitte India, Sumit Singhania.

 

However, as brent crude surged to $105 a barrel at 1630 IST, up from the previous close at 8.45 per cent, experts warned of a steep rise in aviation turbine fuel (ATF) prices eroding fourth-quarter earnings of Indian carriers.

 

“If crude oil prices stay high for some time, it will impact the overall sector. Thus, one needs to watch out for price volatility in the commodity markets to understand the economic impact of the conflict,” remarked practice leader & director, transport and logistics at CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan.

 

“The consequent rise in ATF prices is an area of concern. But that was not unanticipated as crude prices have been rising steadily over the past few weeks. Fears have been expressed that oil prices could touch the earlier high of more than $140 a barrel. We, therefore, hope the situation soon deescalates. Thus, the next few days will be crucial,” observed Deloitte’s Singhania.

 

Increase in airline fares inevitable

Depending on the airline and type of operations, the share of ATF in an Indian carrier’s total operating cost can range anywhere between 25 to 45 per cent. Following the rise in crude oil prices, the cost of aviation turbine fuel (ATF) has advanced 19 per cent to Rs 90,519 per kl from Rs 76,062 per kl on January 1.

 

The high crude prices could lead airline companies to increase fares.

 

“Air ticket prices have to increase or else airlines will have to absorb the cost of the rise in ATF component. We feel that they will have to increase ticket prices as the industry has only recently started recovering from the impact of the coronavirus pandemic. The increase in fares may result in a substantial chunk of leisure and free independent travellers (FITs) shifting to railways,” said CRISIL’s Padmanabhan.

 

The previous fiscal was particularly a challenging period for domestic airline companies. Amid the coronavirus pandemic, the financial loss to Indian carriers was approximately Rs 19,000 crore, while in the case of Indian airports it was approximately Rs 3,400 crore. Domestic air passenger traffic declined by 0.3 per cent in 2019-20 and by 61.7 per cent in 2021 due to the pandemic, according to government data.

 

With inputs from Rahul Oberoi

 

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