New Delhi: Increasing aviation fuel prices and the resulting tightening of costs at airlines across India are likely to make it tougher for passengers to get great deals on their airlines tickets through the summer.
Not just that, the airlines expect that this May would be even better than the same month last year, when they earned among the highest revenues in 2006. In other words, discounts on tickets will be rare. The relatively higher prices, which are still not high enough for airlines to make profits on most of their tickets, are due to a combination of factors as diverse as fleet expansions and a growing sentiment among airlines that reckless pricing could be fatal this year.
“Almost all of us have given some promotions for the May and June, but once those tickets were sold, we haven’t done deep discounts on the remaining seats,” said a revenue management expert at one of the biggest airlines in the country. Those promotions included 100,000 seats on Go Airline India Private Ltd that were given away for free, with passengers only paying taxes and fuel surcharges of about Rs1,100; and thousands of seats at Air Deccan, the budget airline owned by Deccan Aviation Ltd, for less than Rs1,000, plus taxes and surcharges.
The slowing of discounts may enable the airlines to earn more from each passenger, but a recent 19% increase in the price of aviation fuel—measured by the spot market price of Singapore Jet Kerosene—from its biggest low in January 2007 might wipe out any extra money that the carriers are able to coax out of passengers.
“The impact of oil prices around the $80 (Rs3,430) a barrel area is still very vivid in the memories of the airlines. I don’t think that they will hesitate to ease up on the discounting and cut back on any freebies,” said Peter Negline, a Hong Kong-based aviation analyst for investment bank J P Morgan. Indian aviation fuel prices are less volatile than those internationally, but are about 30-40% higher than global averages because of import duties and sales taxes. The fuel prices also lag international price fluctuations by about a month.
“We always keep an eye on fuel prices, because it’s 40% or so of our expenses,” said Bruce Ashby, the chief executive of IndiGo Airlines, a newcomer to the low-cost carriers, which relies on consistently low-ticket prices rather than early deep discounts. “Oil prices have been relatively stable in the last few months, but ticket price will depend on where they go.”
All the airlines introduced a fuel surcharge of about Rs750 on each ticket last year to cover the costs of high fuel prices, which touched $93 a barrel for Singapore Jet Kerosene in July 2006. But since then, the price dropped by 22% in January, and in spite of the recent increase, is still trading almost 14% below its $93 dollar high.
“That surcharge was introduced late in the year, and it didn’t make up for the losses we faced before we could get it introduced,” said a senior officer in the finance department of Jet Airways India Ltd. “As long as fuel prices hold steady, or don’t come anywhere near the record highs, we should be okay.”