Airline sector in India is facing a tough time because of the hike in prices of aviation turbine fuel (ATF) at major Indian cities, despite a fall in global crude prices, as rising costs will add to their woes amid tepid demand due to the COVID-19 pandemic. 35-50 percent of the airline’s total cost incurred is for aviation turbine fuels. Domestic airlines in the country are struggling to keep their costs down. Moreover, the rise in ATF prices will put airlines in further financial stress. A senior airline official said that the hike in ATF prices will make it difficult to add more flights and routes as it will be harder for airlines to cover their variable costs.
According to Indian Oil Corporation Limited (IOCL), the price of ATF has been hiked by 16.3 percent to ₹39,069.87 per kiloliter in New Delhi last week. This is the second straight increase in ATF price in June after rates were hiked by a record 56.5 percent in the national capital on 1st June. According to IOCL data after price revision on 16th June, ATF prices at major cities like Kolkata, Mumbai, and Chennai stood at ₹44,024.10, ₹38,565.06, and ₹40,239.63, respectively.
According to Bloomberg data global crude oil prices have fallen by about 35.29 percent during the last 12 months. Crude oil prices closed at $42.19 a barrel on Friday. Indian airlines spend at least 40 to 50 percent more on ATF prices as compared to several of their contemporaries across the world. As international operations are closed, airlines don’t even have an option to buy ATF at a cheaper rate from abroad. With very low passenger demand due to the pandemic, it is difficult to pass on the entire ATF price hike to the passenger’s ticket charge.
Monthly data released by the Directorate General of Civil Aviation (DGCA) showed that airlines operated at below 33 percent of total capacity after starting operations in the last week of May, as they struggled to fill seats. The government expects that airlines will be able to expand capacity to 45 percent and eventually to 50-55 percent in the coming months. However, the number of passengers traveling may not come back to the pre-COVID level anytime soon. With rising ATF prices, airlines will be conservative about increasing capacity on routes that have low demand.
When the international routes are opened, airlines will eventually do better business. But the passengers will have to bear the sufferings faced by airlines during this pandemic period, as the airlines will eventually increase the travel charge to cover the huge costs borne by them. The airlines are not to be blamed for this as they have no other option.
