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Airfares to go up as rising aviation fuel prices drive up costs

Airfares to go up as rising aviation fuel prices drive up costs
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First Published: Thu, Aug 02 2007. 12 40 AM IST

Air turbulence: The industry, mainly reporting losses for all of last year, has been quick on the increase in fuel charges almost  immediately.
Air turbulence: The industry, mainly reporting losses for all of last year, has been quick on the increase in fuel charges almost immediately.
Updated: Thu, Aug 02 2007. 12 40 AM IST
Airline operators in India are all set to increase fuel surcharge by Rs50-100 a ticket this week from the current Rs950, with oil companies increasing prices of aviation turbine fuel or ATF on the back of record high global oil prices.
Despite the wide variation in ticket prices across the full- service and low-fare airlines, the fuel surcharge—together with a congestion surcharge of Rs150 on each ticket—has remained constant among all carriers except state-run Indian, which does not charge separately for fuel, instead folding such costs into the ticket.
Oil companies that review jet fuel prices at the beginning of every month hiked ATF prices by more than 3% on Wednesday. In New Delhi, the ATF price was increased from Rs37,799.54 a kilolitre to Rs39,059.45—an increase of nearly Rs1,260. The prices of aviation fuel in Mumbai were increased to Rs44,834.09 a kilolitre from
Air turbulence: The industry, mainly reporting losses for all of last year, has been quick on the increase in fuel charges almost immediately.
Rs43,508.15.
Kingfisher Airlines Ltd, which together with now affiliate Deccan Aviation Ltd, the owner of Air Deccan, is the largest carrier by passengers flown in India’s skies today, said a fare rise was definitely on the cards. “Every first of the month we get a knock on our face,” said Kingfisher Airlines’ chief financial officer A. Raghunathan.
“If we have to recover the cost, we need to increase the price by Rs100. We will take a call on it in the next few days after consultations.”
The airline industry, that has as a whole been reporting losses for all of last year, has been quick to pass on the increase in fuel charges almost immediately.
“We have over the past two or three years shown that we are capable of passing fuel prices on to our customers. We will increase our fuel surcharge in terms of what the higher fuel prices are, and others, as in the past, will follow,” said Jet Airways (India) Ltd chief executive Wolfgang Prock-Schauer in an interview on Monday.
The airline’s executive director Saroj Datta on Tuesday said it is yet to estimate the exact change in surcharge, which it will announce soon.
The price hike in surcharges is usually mutually agreed upon by all the airlines which are part of Federation of Indian Airlines, a grouping of the seven scheduled passenger airlines in the country.
Last month, the airlines increased the fuel surcharge by Rs50 though ATF prices had been raised by more than Rs1,050 per kilolitre.
An analyst said the loss-making airlines would find it very difficult not to pass on the increased fuel prices to passengers. “They cannot afford to absorb the costs. Overall, the industry will still be in losses. Logically, they will need to pass it on,” said Kapil Kaul, New Delhi-based analyst with the Centre for Asia Pacific Aviation.
He expected the carriers to increase prices by at least Rs50-60 as the coming quarter is considered a lean season in terms of passenger traffic.
“The better results by Jet Airways were mostly because of the rupee gains and those of SpiceJet (the only two announced, so far) came as they sold off two planes. But most of the next quarter will be losses followed by a better winter,” Kaul said.
ATF prices have long been the subject debate between the ministries of civil aviation and petroleum and natural gas. Airlines want the prices of ATF, which are considered to be one of the highest in the world, to be rolled back, but state-owned oil units Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd—that distribute most of the fuel used in India—say it is one of the only non-subsidized commodity in their bouquet.
“We are not here for charity. If the crude oil prices go up we have to increase them according to the refinery costs. Because of subsidy (on petrol diesel and liquid petroleum gas) we are already losing Rs90 crore,” said IndianOil’s chairman and managing director Sarthak Behuria.
“It’s for the ministry of finance to decide,” he said when asked whether there could be any rethink on jet fuel prices. The civil aviation ministry has asked the oil companies to submit details of how they calculate the ATF base price. They are expected to submit these details in the coming week.
International carriers Singapore Airlines and Qantas Airways have already announced a fuel price hike over the last fortnight.
Flights from India would cost $5 more than before, a Singapore Airlines spokesperson said last week. Qantas said it will also raise the surcharge for tickets issued from 9 August.
Mehul Srivastava of Mint, Michael Smith of Reuters, and Associated Press contributed to this story.
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First Published: Thu, Aug 02 2007. 12 40 AM IST