Recently, Sanjiv Kapoor, chief strategy and commercial officer of full-service airline Vistara, took to social networking site Twitter to sum up the headwinds in India’s aviation industry. “Current ATF (aviation turbine fuel) price just 15 percent lower than highest price (in October, 2013), and almost double lowest price in the period (February 2016),” he tweeted. For Indian airlines, fuel accounts for about 40 percent of their overall costs and is a key factor when it comes to profitability.
At the end of fiscal 2018, airlines saw a 26 percent rise in jet fuel costs, which has impacted their profit numbers, particularly in the January to March quarter. This, even as domestic air passenger traffic in February grew by a record 28 percent year-on-year. The growth was fuelled by capacity addition and competitive fares in the 15-day booking period prior to travel.
Given the environment, higher airfares are the order of the day and that’s likely to dampen the spirits of holiday-goers. Already, in the United States, the world’s biggest aviation market, carriers like Spirit Airlines have raised fares by $3. “Fares are too low for oil prices this high,” said Doug Parker, CEO, American Airlines, in a recent earnings call. “Over time you’ll see them adjust.”
(This story appears in the 08 June, 2018 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)