Airlines raise fares; load factors likely to decline

Written by Corporate Bureau | Mumbai | Updated: Jun 18 2009, 06:36am hrs
Airlines on Wednesday reacted to a 33% increase in aviation turbine fuel (ATF) prices early this week, by raising fuel surcharge, a component of the total fare. This will bring air fares back to the January levels. Airlines had cut back fares since then to increase passenger traffic.

Jet Airways, the countrys oldest private carrier, increased its fares by Rs 400 on all its destinations from June 17.

Similarly, Kingfisher has increased the fuel surcharge by Rs 400.The airline said that on Kingfisher First and Kingfisher Class, the fuel surcharge for distances below 750 kms will now be Rs 2,550, and for distances above 750 kms, it will be Rs 3,400. On Kingfisher Red, the economy class of the airline, the fuel surcharge is Rs 2,350 for distances less than 750 kms and Rs 3,100 for distances above 750 kms.

Flag carrier Air India is likely to follow suit.

Jitendra Bhargava, director (PR), Air India, said the airline is seriously contemplating a fare hike.

The higher fuel surcharges are likely to affect air travel and put airlines in further peril. Airline companies were losing hold even on wafer thin margins, because of a dip in air travel caused by the global financial meltdown.

Experts say passengers will once again move on to other modes of transport.

Last year, when crude oil peaked to $147 a barrel, airlines had frequently raised fares, with the result that air travel dipped by 25%, with many passengers preferring the railways over airlines.

Low-cost airlines like GoAir, SpiceJet and Indigo have not yet hiked their fares. These airlines have not hiked fares despite successive rise in ATF prices, fearing a drop in passengers.

An analyst from a broking firm said, The fluctuation in air fares will put additional pressure on declining yields and load factors. The sector had lowered its fares recently to attract fliers. But with the hike in fares, there is a possibility of passengers deviating to other modes of transport.

Also, with Jet posting losses of Rs 961 crore for FY09 and Kingfisher also likely to post losses, the sector could sink into the red in the short term. Airlines are collectively projected to post losses of Rs 8,000 crore for FY09. Though the sector has tightened its belt to bring down operating costs, revenues will be hit from an expected decline in load factors.

Indian Oil, Bharat Petroleum and Hindustan Petroleum raised aviation turbine fuel price by Rs 3,949 to Rs 36,252 per kilolitre in Delhi. In Mumbai, home to the nations busiest airport, the rate has gone up from Rs 33,260.8 per kilolitre to Rs 37,367 per kilolitre. International crude oil prices have firmed to a seven-month high of $72 per barrel on hopes of a demand revival in the US.