Airfares outpace fuel cost hike

The increase in airfares on most routes across the country has been much sharper than the rise in fuel costs for airlines in the past four months.

Aviation turbine fuel (ATF) prices increased by 34 per cent whereas fares - on an average across the country - shot up by more than 65 per cent. Since fuel accounts for about 45 per cent of the total costs, the actual impact on airlines, in terms of increase in the cost of operation, would have been around 15 per cent. Airlines also cut capacity by 20 per cent during the period.

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Fares shot up over 65 per cent, while ATF have risen by 34 per cent

The airfare hike has been led by the low-cost carriers such as JetLite, SpiceJet and IndiGo

Most airlines have cut capacity by 20 per cent in the past four months

“There might have been a higher increase in fares than the fuel prices in the last three or four months. However, such questions of excessive pricing would have been relevant only if companies had been in the black,” Samyukth Sridharan, chief commercial officer (CCO) of Delhi-based budget carrier Spice Jet, said.

Another airline executive said that the discrepancy in figures occurs because the increase in ATF prices was sudden and came at a wrong time. According to another lost-cost carrier executive, airlines priced their tickets well-below costs, right from January till late May. The huge price hike happened only in June. Suddenly, airlines were forced to wake up to the reality that they could not continue to bear the brunt of the high costs any longer.

Interestingly, the price-hike was led by low-cost carriers like JetLite, Spice Jet and IndiGo. An analysis of twelve sectors, including long and medium-haul sectors like Delhi-Mumbai, Mumbai-Bangalore and Delhi-Ahmedabad and short-haul sectors like Hyderabad-Bangalore, shows that while full-service carriers have increased prices by 52-55 per cent during April and August, low-cost carriers (LCC), led by Jet Lite, increased prices by anywhere between 75-85 per cent.

Mohit Srivastava, head of online sales, makemytrip, said that the last four months have also witnessed a balance in the two main fare components – the basic and the tax. “This is because the basic component has been increased to compensate for the rise in ATF prices. As a result, while the tax increase was in the range of 20-85 per cent, the hike in basic fares has been up to 1,415 per cent for sectors like, Mumbai-Bangalore,” he said.

Figures from the civil aviation ministry clearly reflect that LCCs have suffered a greater fall in loads as compared with full-service carriers. For instance, while loads of Jet Airways from 68.1 per cent to 67.9 per cent, a mere 0.2 percentage point dip, for carriers like SpiceJet, it fell from 67.8 per cent to 57.8 per cent, a fall of 10 per cent. For Indigo, the drop was more dramatic at 59 per cent from 71.2 per cent.

“This is mainly because the ATF price hike was delayed by two months. The price increase was only decided in June, which was the lean season. Also, by then, the budget carriers’ prices were almost at par with full-service carriers. Both were charging similar base fares and fuel surcharges. Hence, the LCCs were hit more,” explained a LCC executive.

However, there is some hope still. In an industry meeting held recently, it was decided that while full-service carriers would hike their basic fares and surcharges, the LCCs would refrain from doing so. This could lead to a price differential of Rs 1,500-1,600 in the fares.