Hike in jet fuel prices may strain finances at airlines
A record hike in jet fuel prices on Friday is likely to strain airline finances, despite a strong recovery in air passenger traffic in March, even as oil marketing companies (OMC) have hiked the price of 19 kg commercial LPG cylinder by around ₹250 with immediate effect.
This comes on the back of an increase in global energy prices amid the Ukraine crisis and supply concerns, with Brent crude trading at $105 on Friday, up 65% on an annual basis.
The ATF hike on Friday is the seventh in 2022. In New Delhi, aviation turbine fuel (ATF) price rose a record 20.74% from a month ago to ₹1,12,924.83 per kiloliter. Prices in Kolkata, Mumbai, and Chennai rose to ₹1,17,353.71, ₹1,11,690.61 and ₹116,583.71 per kl, respectively.
Jet fuel prices are revised every fortnight and differ across states because of varying valueadded taxes. Jet fuel makes up 30-40% of the cost of running an airline in India and the price hike will crimp profit margins of airlines that have reported huge losses over the last few quarters as a fallout of the pandemic. Airlines have been pressing the government to bring jet fuel under the ambit of the goods and services tax (GST) as it will give airlines the benefit of an input tax credit. “The high taxes on jet fuel will need to be relooked,” a senior airline official said, requesting anonymity.
Airlines may find it difficult to pass on the entire cost hike to passengers without impacting demand, the official said, adding that the positive is that so far, the market has not crashed despite high airfares. However, domestic traffic is seeing a surge in recent weeks, with a decline in active cases of covid. According to data compiled by the aviation website NetworkThoughts, 10.26 million passengers flew on domestic flights during March, up 34.31% over February.
Meanwhile, the 19 kg commercial cylinder now costs ₹2,253 in Delhi against the past level of ₹2,003.50 per cylinder.