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NEW DELHI: Oil marketing companies (OMCs) on Monday raised prices of aviation turbine fuel (ATF) by about 13.8% from last month, and by 95.8% in the last one year, as global crude oil prices firmed up on improved demand.
Jet fuel makes up 30-40% of the cost of running an airline in India and an increase in prices will hurt profit margins of airlines which have reported huge losses over the last few quarters due to the covid-19 pandemic.
ATF prices currently stand at ₹82,638.79 per kl (kiloliter) in New Delhi up from ₹72,582.16 per kl a month ago, according to data from Indian Oil Corp. Ltd (IOCL). Prices in Mumbai are at ₹81,050.70 per kl, in Chennai at ₹85,032.62, and in Kolkata at ₹86,734.26 per kl.
Jet fuel prices are revised every fortnight. Brent crude prices have risen by over 100% during the last year.
Until February 2021, ATF prices remained lower than the year-ago period, but prices have been rising since then, as per rating agency ICRA. ATF prices in March, April, May, June, July, and August were higher by 3.0%, 59.8%, 103.4%, 86.3%, 59.7%, 55.3%, respectively, on a year-on-year (y-o-y) basis.
In September, prices rose 54.6% year-on-year, attributed to the low base of September 2020 when rates had declined 32.2%, a result of the pandemic.
With the rising ATF prices, brokerages expect Indian airlines to remain largely loss-making this quarter.
“With daily traffic at about 250,000 levels, crude at (over) $75 per barrel, no major supply cuts by any airline and a long road to recovery for the international segment, profits remain distant," said ICICI Securities in a recent report. “However, higher-flying capacity and seasonally strong Q3 (October-December 2021 period) should help limit losses," it added.
Last month, the government removed a capacity cap imposed on airlines since the resumption of domestic flight services in May 2020. Airlines can now operate at up to their full pre covid capacity on domestic routes especially at a time when ticket bookings are soaring.
A senior airline official said rising jet fuel prices will add pressure to the bottomline as carriers operate more flights. "Airlines will have no option but to pass it down to the customers," the official said, requesting anonymity.
