Fuel prices expected to fall but airlines still plan to raise fares

Fuel prices expected to fall but airlines still plan to raise fares
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First Published: Sun, Aug 24 2008. 11 18 PM IST

Downtrend: Passengers at the Indira Gandhi International airport in New Delhi. The number of people travelling by air had fallen to 3.04 million in July, down 12.65% from a year ago. Photograph: Madhu
Downtrend: Passengers at the Indira Gandhi International airport in New Delhi. The number of people travelling by air had fallen to 3.04 million in July, down 12.65% from a year ago. Photograph: Madhu
Updated: Sun, Aug 24 2008. 11 18 PM IST
Mumbai: Rising Indian airfares show no sign of pausing even though airline fuel prices are expected to fall in the coming weeks.
Indeed, the big three airline groups—Jet Airways (India) Ltd, Kingfisher Airlines Ltd and National Aviation Co. of India (Nacil)—are all considering raising fares by between 10% and 20%, airline executives say.
Downtrend: Passengers at the Indira Gandhi International airport in New Delhi. The number of people travelling by air had fallen to 3.04 million in July, down 12.65% from a year ago. Photograph: Madhu Kapparath / Mint
The rest, mainly low-cost carriers, have not taken a decision yet on fares for September and October, but typically follow the lead of so-called full-service airlines.
The potential price hikes come at a time when oil marketing firms have indicated that there will be a downward revision of jet fuel prices, also known as aviation turbine fuel, or ATF, by at least 15% for September, triggered by dropping global crude oil prices.
India’s carriers expect to post a combined loss of $2 billion, or Rs8,680 crore, in 2008-09, primarily due to high prices of jet fuel, which constitute up to 60% of the operating cost of some airlines.
ATF sells in New Delhi at about Rs71,000 a kl, up from Rs69,000 in July. In February, the same fuel sold at Rs45,000 a kl at the Capital’s airport. Fuel costs for India’s airlines have tripled in the past three years.
Jet Airways needs to increase its fares by at least 20% to cover its cost of operations and make a reasonable or small profit, said Sudheer Raghavan, the airline’s chief commercial officer. “We are not bothered about what our competition is doing on fares, but we will be increasing fares in September and October,” he said on the sidelines of an event to launch Jet’s service to Dubai from Mumbai.
Jet Airways, which also owns low cost airline JetLite, increased the so-called basic fare on its tickets by 10% in August as did other carriers. Domestic airfares are built on a basic fare and several additional levies designed to counter rising fuel prices, the additional fuel burnt as aircraft hover around crowded airports waiting for a time slot to land, and taxes. The levies total up to Rs3,475 on each ticket.
Kingfisher said it, too, was planning to raise fares. “We do not believe in selling tickets below the cost. We will consider increasing the fares in coming months,” said a Kingfisher Airlines executive, asking not to be identified.
At Nacil-run Air India, a decision on increasing fares would be taken shortly, said an executive, also not wanting to be named.
Low-cost carriers, however, are apprehensive that fare hikes may further drive away passengers to other modes of transport such as railways. While full-service carriers want low-fare carriers also to stop selling cheap tickets, low-fare carriers have resisted raising fares fearing passengers will opt for full-service carriers if there is no big difference in the ticket rates.
The number of people travelling by air has fallen to 3.04 million in July, down 12.65% from a year ago. The passenger numbers in June, too, was over 3% less than the year-ago month.
A Mumbai-based analyst said higher air fares would help airlines that are already seeing higher average revenue per passenger, but also predicted there would be good deals for passengers if they booked tickets early as air-lines look to stimulating demand with promotional fares. The analyst requested anonymity because he is not allowed to be quoted by the media.
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First Published: Sun, Aug 24 2008. 11 18 PM IST
More Topics: Fuel prices | Air fares | Jet | Kingfisher | ATF |