Air fares are likely to rise next month, with airlines passing on the impact of the latest fuel price rise to passengers. Yesterday, oil marketing companies hiked the price of aviation turbine fuel (ATF) by 3.5 per cent, the second one in two months.
"We are likely to increase fares," a senior Jet Airways executive said. Although no decision has been taken, he indicated the change would come into effect from next month, as travel demand in March is low.
Fuel accounts for 45-50 per cent of operating costs for Indian carriers and any rise in its cost will impact profits.
Last September, oil companies raised ATF price by seven per cent. Prices dropped next month, but have been rising again since January, on the back of a rise in global crude prices. Globally, crude oil prices are nine per cent higher over the December price.
Following the price hike in September, airlines had revised the fuel surcharge on domestic and international routes. It was increased by Rs 150-250 in the domestic sector and $15 on international tickets. However, negative growth in demand has restricted airlines from passing on the entire burden to passengers.
"We have seen a strong correlation between price increase and fall in travel demand. For the first time in seven years, there was negative growth in air travel demand,'' siad Sharat Dhall, chief operating officer of online portal Yatra.com.
"An increase in fuel prices is negative for earnings prospects, unless the increase can be passed on to passengers without negatively impacting the demand," HSBC Research analysts Rajani Khetan and Mark Webb said in a recent report.
The report notes that even the international traffic carried by Indian airlines declined 20-25 percent from last April and cautioned that while capacity will grow nine per cent, traffic recovery prospects remain uncertain.