New Delhi: Airlines may have to absorb the impact of rising fuel prices, a move that would affect their profitability, if crude oil prices increase further, said Ajay Singh, chairman and managing director of SpiceJet Ltd.
“So far we have been able to pass on the increase in oil costs to passengers, which the market has taken well as we are currently flying with load factor exceeding 90% at high yields," Singh said in an interview on Tuesday. “We don’t know the answer if this will be passable to passengers if oil hits as high as $100 a barrel."
Crude oil prices, which stood at $66.57 per barrel on 1 January, rose to $75.61 a barrel on 8 May, according to Bloomberg.
Singh said that state governments should cut taxes on jet fuel to bring them on par with international prices and that jet fuel should be included in the goods and services tax regime.
Higher global crude oil prices and a depreciating rupee are pushing domestic airlines towards losses despite recording higher passenger load factors in recent months.
SpiceJet, Singh said, will continue to expand into smaller towns to generate revenues.
“We will add new destinations like Kanpur, Darbhanga, Hubli and Pakyong (Sikkim) as soon as airports at these places are ready and connect them to bigger cities such as Delhi, Mumbai and Kolkata," Singh said, adding that small towns are seeing good load factors and yield.
“SpiceJet is in good shape. As we expand and grow, the cost should come down," he added.
Singh, however, has no plans to dilute his stake in the airline or bring in a strategic partner.
“We are always looking at code share opportunities. But I am not looking to dilute my equity to raise money as I don’t need to do this," he said. “I am making enough money and my aircraft purchase is fully funded. We will get cash from sale-and- lease-back model."
SpiceJet will take delivery of its first Boeing 737 Max aircraft in August. It has ordered more than 200 such aircraft.
“Our focus at the moment is to make sure that these aircraft are completely deployed. At the same time we are exploring wide-bodied aircraft—if there is a model where we can make money," he said.