Despite a steep fall in the jet fuel prices, which now costs less than diesel, major airlines like SpiceJet, Jet Airways, Air India, others will not be reducing their ticket prices as the aviation sector is still bogged down by several challenges, including exuberant taxes, which continue to keep their costs high.
A senior Air India official told FE that though the fall in aviation turbine fuel (ATF) prices was a respite for the aviation sector, airlines are still facing challenges in their bid to report quarterly profits.
“Slashing airfares due to reduction of ATF prices is not an option since most airlines are loss making. Also, several rounds of fare wars since the beginning of the year have allowed many airlines to sell their tickets in advance ,” the official said under the condition of anonymity.
According to aviation consultancy firm Centre for Asia Pacific Aviation (CAPA), losses posted by Indian airlines are expected to narrow by over 20% during the third quarter of financial year 2015 (FY15) on the back of a steep reduction in jet fuel costs and higher fares charged by airlines to passengers during the quarter.
CAPA had in a January report said that the losses of domestic airlines are likely to decline to close to $1 billion for FY15. CAPA had earlier estimated that India’s airlines would post a combined loss of as much as $1.4 billion during FY15.
The price of ATF or jet fuel, was cut by Rs 5,909.9 per kilolitre, or 11.27 per cent, to Rs 46,513.02 per kilolitre on January 1 in New Delhi.
The reduction, which followed possibly the steepest ever cut of Rs 7,520.52 per kiloliter or 12.5% effected from January 1, has led to ATF becoming cheaper than even diesel.
The recent reduction saw the ATF price slip to Rs 52.42 a litre, below Rs 58.91 a litre cost of petrol in Delhi. And after today’s cut it costs Rs 46.51 per litre and is cheaper than diesel that sells at Rs 51.52 per litre.
A Mumbai-based travel agent told FE that though it was highly unlikely that airlines would slash airfares due to a cut in ATF prices, travelers could benefit from fare wars in the coming months which would offer tickets at a considerable lower costs.
“Several new airlines are likely to start operations during FY16. Vistara and Air Asia India are also expected to strengthen their networks and roll out discounts to lure passengers. This would force other airlines to follow suit which will ultimately benefit the passengers,” he said.