Air­fares Set to Soar on Higher Jet Fuel Prices

Air­lines are bring­ing back fuel sur­charge com­po­nent as a sep­a­rate item in the fare

The Economic Times - - Companies: Pursuit Of Profit - Anir­ban.Chowd­hury @times­group.com

Mum­bai: In­dia’s del­i­cately bal­anced cur­rent ac­count wouldn’t be the only ma­jor ca­su­alty of costlier crude oil: Lo­cal trav­ellers now have to pay more to fly within the coun­try as ex­pen­sive jet fuel pro­pels air­lines to raise do­mes­tic fares that had tracked global en­ergy prices to plunge to record lows last year. Higher con­sumer fares in Jan­uary re­flect the per­sis­tent rise in avi­a­tion-fuel prices, which in­creased 8% on-month in Novem­ber at the New Delhi air­port, the coun­try’s busiest. Af­ter a brief lull in De­cem­ber, prices firmed in Jan­uary and Fe­bru­ary, breach­ing the lev­els of 2015 when the cy­cle of de­clines be­gan. The trend has led car­ri­ers to pass ad­di­tional fuel costs on to con­sumers, many of whom switched to air­lines af­ter the gap be­tween air and up­per-class train fares nar­rowed in 2016.

A se­nior ex­ec­u­tive at Jet Air­ways, In­dia’s sec­ond-big­gest air­line by mar­ket share, said the air­line has re­cently re­vived the prac­tice of levy­ing a fuel sur­charge — a fare com­po­nent linked to move­ments in jet fuel prices — on do­mes­tic flights. “We used to charge be­tween ₹ 100 and ₹ 300 de­pend­ing on short-and long­haul sec­tors. Now we charge as much as ₹ 700,” he added. Jet-fuel is the big­gest cost item for In­dian car­ri­ers.

Prices of pe­tro­leum prod­ucts be­gan ris­ing since last spring af­ter the 2015-16 win­ter wit­nessed record lows for crude oil, with global prices breach­ing $30 a bar­rel on their way down to lev­els not seen since the 1980s. How­ever, af­ter a pe­riod of con­sol­i­da­tion that an­a­lysts be­lieved would have put many shale-oil pro­duc­ers out of busi­ness, global crude oil prices be­gan firm­ing and have now sta­bilised at around $55 a bar­rel, a level that some be­lieve would be main­tained over the medium term.

Air­lines had clubbed fuel sur­charge with the base fare com­po­nent in 2015 af­ter an ad­vi­sory from the Direc­torate Gen­eral of Civil Avi­a­tion, the coun­try’s avi­a­tion reg­u­la­tor. No-frills car­rier SpiceJet has sep­a­rated the two com­po­nents over the last six months, al­though the fuel sur­charge hasn’t been in­creased yet, said a spokesper­son.

Travel com­pany ex­ec­u­tives said over­all fares have in­creased in Jan­uary. Ac­cord­ing to data on Make­mytrip, the coun­try’s big­gest on­line travel por­tal, av­er­age fares dropped in Novem­ber and De­cem­ber but rose in Jan­uary. Ticket prices for the Delhi-Mum­bai sec­tor rose to ₹ 4,266 in Jan­uary, com­pared with ₹ 3,908 the same month last year, ₹ 4,914 on the Mum­baiBen­galuru sec­tor com­pared with ₹ 4,573 a year ear­lier, and ₹ 4,473 on the Mum­bai- in­creased fuel sur­charge, some other air­lines may fol­low

Make­mytrip and Ya­tra have seen an in­crease in fares in Jan­uary 2017 as against Jan­uary 2016 Chen­nai route, as against ₹ 3,784 last year.

Ri­val Clear­trip no­ticed di­ver­gent trends that showed those book­ing early stood to ben­e­fit. Last year, spot-book­ing fares too had fallen dras­ti­cally. “An anal­y­sis of the last three months of air­fare data for the top 20 air travel sec­tors re­veals that the in­creased cost to air­lines, con­trib­uted by the fuel prices surge and the ru­pee’s de­pre­ci­a­tion, has re­sulted in a 15% in­crease in air­fares for a book­ing win­dow of 0-14 days,” said Samyukth Srid­ha­ran, COO, Clear­trip. “At the same time, air­lines have been quite ag­gres­sive in of­fer­ing deals to pas­sen­gers who plan in ad­vance, re­flected in a 21% year-on-year drop on an av­er­age for travel book­ings made over 14 days in ad­vance,” he added.

To be sure, the in­dus­try’s abil­ity to charge more will de­pend on the di­rec­tion in avi­a­tion-fuel prices and sea­sonal changes in air-travel de­mand.

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