Mumbai / New Delhi: India’s state-run oil firms have indicated they will increase jet fuel prices by more than 10% starting 1 June tracking record global oil prices, forcing airlines to increase domestic airfares even as they scale back on routes to rein in costs, and customers turn away citing unaffordable ticket prices.
Airlines have increased the so-called fuel surcharges levied on air tickets by up to Rs350 in May after oil firms increased aviation fuel prices. It is unlikely to be any different this time, though it is unclear by how much.
“It is bound to happen,” said Samyukth Sridharan, chief commercial officer at SpiceJet Ltd, referring to the increase in fuel surcharge and follow-on airfare increases. The airlines “cannot afford not to pass the hike” to passengers, he added.
“Airlines have said fuel taxes will go up by another Rs400 per person (from 1 June) even as the international fuel taxes are ever increasing,” said Sanjeev Bhasin, assistant vice-president at travel portal Makemytrip.com India Pvt. Ltd.
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The airlines include Jet Airways (India) Ltd, which together with its low-cost carrier JetLite Ltd makes for the biggest Indian airline group by passengers carried, and SpiceJet, he added. Calls and text messages to Jet Airways chief executive Wolfgang Prock-Schauer for comment were not returned.
Hitesh Patel, executive vice-president of Kingfisher Airlines Ltd, ranked second behind Jet Airways, said his firm would increase airfares but did not say by how much.
Aviation fuel sells for Rs58,387.92 a kilolitre in Delhi and Rs60,468.28 a kilolitre in Mumbai—up over three-quarters in value since the same month in 2005.
While June aviation fuel prices are still being finalized, a senior official close to the development at one state-run oil firm said on condition of anonymity that “it would be 10% or more as the rupee has devalued (against the dollar) so much.”
At the end of every month, India’s three big oil companies—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd—decide the price at which to sell jet fuel in the coming month based on foreign currency rates and global crude oil prices.
The decision by airlines to raise airfares comes at a time air passenger traffic growth in India has slowed to 11.12% in the first three months of 2008 from nearly 40% growth in the same period a year ago.
To reduce losses, the carriers, faced with travellers switching to rail or road transport as airfares even on 40-minute flights tote up to Rs2,000, are culling some flights on their short-haul routes that are flying increasingly empty.
For instance, India’s largest low-fare carrier Simplifly Deccan, run by Kingfisher Airlines, has stopped its flights between Delhi and Pathankot in Punjab.
Gurgaon-based SpiceJet has pulled back over 14 daily flights on short routes in the past three months that include Mumbai-Jaipur and Bangalore-Cochin, and reduced six flights between Bangalore-Hyderabad to just two, besides scaling down the Chennai-Hyderabad routes.
“Short-haul sectors are slowly vanishing from the market because of high fares and high operating cost. Passengers are shifting towards road and rail as these short routes can be covered in approximately six hours,” said a senior executive at a low-cost carrier, who declined to be identified.
An increase in fuel surcharge is likely to hit domestic growth further as it has already done over the past few months, and the big question worrying airline managers is by how much.
“The question is where is the new equilibrium going to be reached for the industry where fuel price, fares and demand for seats balance out? And I don’t think any of us know the answer to that question just yet,” said Bruce Ashby, chief executive of IndiGo, a low-cost carrier run New Delhi’s InterGlobe Aviation Pvt. Ltd.
India’s carriers, which had collectively placed orders to buy more than 500 airplanes in the next five years, are also deferring taking delivery of aircraft, or reviewing buying plans.
“We are evaluating the possibility of reviewing the whole fleet acquisition plan as there is excess capacity in the market. It is impossible to operate for airlines in the context of high jet fuel cost and excess capacity,” said Kingfisher’s Patel.
Patel said the carrier is mainly reviewing the acquisition of “single aisle” planes, which he may have over-ordered. Single aisle planes are mid-sized aircraft generally used for domestic services. Popular single-aisle planes are Boeing B737 and Airbus A320.
Asked whether the carrier will review the purchase plans of bigger planes including super jumbos A380, Patel said “at present we are looking at re-looking at single-aisle planes.” This UB Group-airline which is merging with Deccan has placed orders for nearly 200 planes, of which approximately 140 planes are single aisle.
Jet Airways has decided to replace its wide-body Boeing B777 planes flying on the US routes with Airbus A330-model aircraft that has lower seat capacity even if it “would mean Jet Airways parking these two bigger Boeing planes on the ground,” according to a person familiar with the development, who cannot be named because he is not authorized to be speak to the media.
SpiceJet will continue to take the delivery of its Boeing B737s as per its acquisition plan, but would not add to the market capacity by deploying them in new routes. The airline is also considering the option of “wet leasing” or renting the planes out along with crew in the months ahead.
At Mumbai-based low fare airline Go Airlines (India) Pvt. Ltd, the management does not intend to renew the lease on one among six planes it has in its fleet when the lease comes up for renewal.
“The idea is keep fleet size at five and to minimise losses,” a company executive said, asking not to be identified because the decision has not been announced.