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Airfares may rise further in the coming days after the latest hike in jet fuel price, as airlines pass on the higher expense to customers. However, a steep hike could depress passenger traffic that has seen a steady rise in the last few months. Mint explains

How much have jet fuel prices increased?

Price of aviation turbine fuel (ATF) is linked to global crude oil prices, and revised every fortnight. It touched a new record on 16 May, rising 5.29% to 1,23,039.71 per kilolitre (kl) in New Delhi. On 2 May, ATF prices in the national capital was at 1,16,851.46 per kl. This is the highest ever price for ATF, which has seen 10 straight increases since the beginning of 2022. ATF prices, which differ depending on the city due to state taxes, have increased by about 55% since 1 January. In Mumbai, it currently stands at 121,847.11 per kl; in Chennai at 127,286.13 per kl; and in Kolkata at 127,854.60 per kl.

What is behind this sharp increase?

ATF prices are linked to global crude oil prices, and have risen steadily due to the Russia-Ukraine conflict, which has removed Russian oil from the market. Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) and its allies have refused to increase oil production, leading to a further escalation in prices. However, the economic slowdown in major economies like China, which remains one of the largest importers of oil, could lead to a decline in oil prices in the future. Any possibilities of easing high oil prices would also depend on the outcome of the Russia-Ukraine crisis, hopefully, by the year-end.

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How are Indian airlines impacted by this rise?

ATF makes up 30-40% of the cost of running an airline in India, and an increase in its prices will hurt the profit margins, unless airlines pass on the costs to fliers. Airlines have reported huge losses over the last few quarters due to the covid-19 pandemic. The rupee’s depreciation has further impacted them, as a large portion of their costs are borne in US dollars.

How will it impact passengers?

Passengers will have to pay far more for tickets. Airfares have risen sharply in 2022. As things stand, average domestic airfares in May are up by about 30%-40% against the fares in January, while airfares on some popular routes have gone up by more than 50% during this period, according to data from online travel company ixigo. Domestic airfares in May are up 50-75% on popular routes as compared to the year-ago period. Meanwhile, international airfares, have risen as high as 45-50% on some popular routes.

Will rising airfares impact demand?

Domestic passenger traffic has been steadily rising. According to data collated by aviation website Network Thoughts, domestic air passenger traffic during the first 15 days of May, up 7.5% from the same period in April, is the best recorded during the first half of any month in the last two years. Airline officials are wary that any further rise in airfares could impact demand as a large portion of the domestic passenger base are price-conscious. Experts also say that a section of air travellers could shift to rail and road transport.

 

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