Air tickets to cost more as a result of increase in jet fuel price

Crude oil is costlier so are petrol, diesel and LPG. Jet fuels fall in the diesel group- it is called refined diesel or Aviation Turbine fuel. Read below an article on effect of oil price hike on air travel.


Airfares set to rise again as jet fuel prices go up
By Lalatendu Mishra, Hindustan Times, New Delhi, August 01, 2008

Air Travel may get costlier, as oil marketing companies on Thursday increased Aviation Turbine Fuel (ATF) prices by 3 per cent even though crude oil prices softened by over 15 per cent in the past fortnight. This puts an additional burden of a little over 3 per cent on airlines, as fuel accounts for more than 50 per cent of the operating cost of airlines.

On July 11, oil touched its all time high of $147 a barrel and it has now come down to $123 a barrel. Airlines have not pressed the panic button and raised fuel surcharge yet, but a 10 to 15 per cent hike in basic airfare seems imminent. "It may not happen immediately, but fares must be go up by more than 10 per cent to enable us arrest the losses," said a senior official of a private airline who asked not to be named.

"We will have wait and watch (before increasing fare)," Jitendra Bhargava, executive director, Air India told Hindustan Times. Parthasarathi Basu, chief financial officer, SpiceJet concurred that his airline too would be reviewing the situation. Airline bosses fear that any further hike would be a knockout blow for the industry, which is already reeling. "Loads have gone down, a price hike would be suicidal now," said an airline executive.

The tendency of airlines to operate more than needed flights on a particular sector is cited as another reason, which forces airlines to sell tickets at discounts while incurring losses. "In July the typical total fare between Mumbai and Delhi was Rs 5,200 even as the break even cost to the airline was Rs 6,600," says Dinesh A Keskar, senior vice president (Sales), Boeing. "Similarly, airlines sold Mumbai-Hyderabad tickets at Rs 3,100, while the break-even fare was Rs 4,500."

All this means that unless oil prices come down further, airlines will be forced to hike fares to stay afloat. However, analysts feel that the decline in global oil prices could reflect in the ATF pricing next month.