At a time when crude oil prices are softening internationally, domestic carriers are raising fares by as much as 10 per cent to boost yields and cut losses. The new rates will be effective from August 1.
In another development, public sector oil firms today raised ATF prices by around 3 per cent.
Jet Airways is expected to hike base fares across all sectors by 5 to 10 per cent. On the Mumbai-Delhi sector, economy fares may rise by Rs 350, while business class fares may climb by Rs 300. Kingfisher Airlines also plans to raise fares by 10 per cent across the board for all sectors. Jet Airways maintains that its hike in base fares has little to do with the 2.8 per cent increase in aviation turbine fuel (ATF) prices announced today.
It is more to do with commercial reasons, the company added. It is unusual for airlines to announce a fare hike in a lean season (July to September), when they are struggling to improve their load factors. According to aviation experts, the game for airlines has changed now and fares are no longer linked to oil prices in the current circumstances, but airlines will look to increase yields.
| CHANGING TACK |
The 15 per cent cut in capacity by airlines in the past few months will definitely help carriers to command a price that will help them boost yields.
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Explaining why airlines are hiking fares in the lean season, a Jet Airways executive, who did not wish to be named, said, "For airlines when yields are falling in the market and capacity is reduced, it is the right time to go through with the announcement in fare hike because this hike will stick and will help yields go up."
Basically for airlines, what the move will mean is they will have to monitor their inventories regularly and keep on knocking off the lowest fare baskets, making passengers who pay more to bump up.
Other carriers, like Delhi-based SpiceJet and national carrier Air India, are also contemplating a hike, but have not decided on the figure of the exact rise in fares. "We are considering an increase in fares, effective August 1, in view of the ATF price hike," said Jitendra Bhargava, executive director, corporate communications, Air India.
SpiceJet said it will also follow suit and announce its hike in a couple of days.
"We are in discussion for a fare hike and a decision will be taken soon," said Partha Sarthi Basu, chief financial officer, SpiceJet.
According to aircraft manufacturer Boeing, airlines in India will have to increase their base fare to diminish the gap that currently exists to get to a break-even state, which will turn them profitable.
Boeing says the gap is still 21 per cent at the current fare level even with the hike in fuel surcharge. It is this line of reasoning that airlines are now taking to hike the base fares and let the surcharges be what they are.