Airfares are set to rise ahead of the peak travel season as jet fuel prices rose for a third straight month, including a 14.12% increase on Sept. 1. Coupled with continued weakness in the rupee against the US dollar, air ticket prices are expected to rise. Leading to a 5% increase in ticket prices for the upcoming traditionally high-demand quarter (Q3). Plus, the grounding of airlines like GoFirst and recurring engine problems could dampen the festive spirit for air travellers.
ATF prices have risen about 24% in the past three months, impacting airlines’ operating costs and potentially leading to higher ticket prices. Oil companies announced an average 14% increase in aviation fuel (ATF) prices on Sept. 1. This pushed ATF prices in Delhi to Rs 1.12 lakh per kg, the highest since December 2022. Similar rises were seen in other cities, including Mumbai and Kolkata.
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A search for popular routes between Delhi-Mumbai or Delhi-Bangalore next week shows airfares at Rs 5,600 and Rs 5,300 respectively, around Rs 200-300 more than usual.
Players such as yatra.com say demand typically peaks during the first week of the festive season in September. “Air fares have increased by at least 10% over this period,” a company spokesman said.
Jagannarayan Padmanabhan, senior director and global head of transport logistics and mobility at Crisil, said that as the off-season continues, airlines will be faced with a dilemma: whether to forego the price increases or absorb them to maintain ticket prices. “With the upcoming festive season and more capacity coming, airline margins will come under pressure. To maintain the same margins, I would expect ticket prices to rise by about 5%,” he added.
Airlines spend 30-40% on fuel costs and 35-50% of operating expenses (including leasing, fuel and maintenance) in US dollars.
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“The higher the (ATF) price, the greater the impact on costs. Because of the duopoly (between IndiGo and Air India), they will pass on the cost of the increase to customers,” said an industry expert who requested anonymity.
However, a low-cost carrier official countered that “as our margins continue to be distorted, we have no choice but to pass prices on to our customers.”
Rupee weakening against USD, down 3.6% in Sep’22, 4.9% in Aug’22 and 4% in Jul’22, remains a concern.
Some airlines have foreign currency debt. While domestic airlines have some natural hedges for fuel within the scope of their international business revenue, overall their net payables are in foreign currencies. However, the recovery in international travel is lagging, with an average of 43.8 million kilometers traveled per month in 2023, down from 45.6 million kilometers in 2019. That means the chances of recovering costs from international operations remain slim.
As a result, airfares are likely to remain elevated in the second and third quarters of fiscal 2024, experts noted.