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Fuel accounts for nearly 45-50% of operating costs for Indian carriers and any hike in fuel cost will impact their profits. Last September oil companies hiked ATF price by 7%. Prices dropped next month but have been rising again since January on the back of rise in global crude prices. Globally crude prices are 9% higher over December price.
"We are likely to increase fares,'' a senior Jet Airways executive said. Although no decision has been taken yet he indicated that the change in fares would come into effect from next month as travel demand in March is low.
Following the fuel price hike in September airlines had revised the fuel surcharge on domestic and international routes. The surcharge was increased by Rs 150-250 in domestic sector and $5 on international tickets. However negative growth in demand has restricted airlines from passing on entire burden to passengers.
" We have seen a strong co-relation between price increase and fall in travel demand. For the first time in last seven years there was a 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. Indian air traffic demand is price sensitive and fare increases over the past three quarters have caused air traffic demand to fall,'' 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% from last April and cautioned that while capacity will grow nine% traffic recovery prospects remain uncertain.
