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Jet fuel prices fall 16%, but fares won’t dip anytime soon

Jet fuel prices fall 16%, but fares won’t dip anytime soon
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First Published: Mon, Sep 01 2008. 12 13 AM IST

Wait and watch: A Kingfisher airline plane at Bangalore airport. Domestic carriers say they are in no position to immediately pass on the benefit of lower fuel prices to consumers. (Hemant Mishra/Mint
Wait and watch: A Kingfisher airline plane at Bangalore airport. Domestic carriers say they are in no position to immediately pass on the benefit of lower fuel prices to consumers. (Hemant Mishra/Mint
Updated: Mon, Sep 01 2008. 12 13 AM IST
Mumbai: State-run oil marketers have lowered jet fuel prices by 16%, or by an average Rs11,784 per kilolitre, for September after crude oil prices have cooled, but airlines, which have been reeling under record-high prices of fuel, say they will not immediately cut air ticket prices.
Oil firms, who sell almost all the jet fuel used in India, set the price of the fuel at the end of every month for the coming month. Sunday's revision means jet fuel price has come down to Rs61,834.81 a kilolitre in  Mumbai compared with Rs73,673.56 in August. 
Wait and watch: A Kingfisher airline plane at Bangalore airport. Domestic carriers say they are in no position to immediately pass on the benefit of lower fuel prices to consumers. (Hemant Mishra/Mint)
The reduced prices come at a time just when domestic carriers, which levy Rs3,100 on each ticket to buffer the impact of high fuel prices, prepare for traditionally high-demand months beginning mid-September as holidays begin in India.
The busy season peaks in end-December when tourists from the West pour into the country.
Airlines, for whom jet fuel accounts for 45-60% of operating costs, are unlikely to pass on the benefits of the reduction in prices to passengers. In fact, full-service carriers are mulling a 10% hike in fares as they say they are yet to see a respite from high fuel prices.
“For the time being, we don’t want to change our pricing strategy. We want to see medium-term development of fuel prices before we take a call,” said Wolfgang Prock-Schauer, chief executive officer, Jet Airways (India) Ltd. “Even after this reduction, fuel prices are significantly above the levels compared to half year ago.”
“We need at least two-three months of stable jet fuel prices before we can go back and review current prices,” said Parthasarthy Basu, chief financial officer of SpiceJet Ltd.
Driven by four months of unabated fuel price increase (March to June), Indian carriers, that are expected to post a combined loss of $2 billion (Rs8,760 crore) in fiscal 2009, have reduced their seat capacity by 20%.
A senior official at National Aviation Co. of India Ltd, that runs Air India, said fuel surcharges compensate his airline only to the extent of 40% of fuel increase over one year.
“There is a large uncovered gap between increase in fuel cost and recovery by way of fuel surcharge. The crude oil prices have to stabilize below $80 a barrel for airlines to consider any pass-on benefits to the passenger,” he said, requesting anonymity.
Samyukth Sridharan, chief commercial officer with SpiceJet, said: “The last couple of months have seen a big correction in ticket pricing industry-wide, driven by the high fuel prices. We believe the current prices are clearly much more reflective of our costs than has ever been in the past and, hence, we are seeing a better revenue-realization currently. SpiceJet expects that this will continue into the balance of this fiscal.”
Executives from Kingfisher Airlines Ltd have also indicated they are in no position to pass on the benefit.
A Mumbai-based analyst with a domestic brokerage, who did not want to be identified because he is not allowed to be interviewed by the media, predicted airlines will now focus on increasing the fares and increasing yields as the problem of overcapacity in the market has been addressed by airline firms.
However, passengers are not happy.
“There is no justification for not passing on this reduction (to the passengers) as the prices have come down to April level. Airlines were crying foul about the ATF prices. It cannot penalize travellers like us even after oil marketing companies are lowering the price,” said Edward Kennedy, a frequent flyer and businessman based in Mumbai.
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First Published: Mon, Sep 01 2008. 12 13 AM IST
More Topics: Jet fuel prices | Oil | Crude | ATF | Airlines |