Aviation turbine fuel (ATF) comprises nearly 40% of total costs of airline operations. Around 70% of the total domestic ticket bookings take place in 0-28 days' travel window.
Airfares could rise by 15-20% during the upcoming festival season with global crude oil prices jumping 12% due to drone strikes on world’s largest oil producer Saudi Aramco, according to experts and travel industry executives.
Aviation turbine fuel (ATF) comprises nearly 40% of total costs of airline operations. Around 70% of the total domestic ticket bookings take place in 0-28 days’ travel window. The festival season starts with Navratras from September 29 and run up to Diwali on October 27.
Domestic ATF prices stood at Rs 63,295 per kilolitre in Delhi. The current prices are down around 8% year-on-year but things could change quickly. Experts believe that the impact of the Aramco incident is expected to continue for next three months. “The Aramco refinery attack clubbed with the weak rupee on the dollar should raise jet fuel prices by 15-18% per litre, depending on the states. We expect similar increase in base airfare in the coming days. Clearly, this doesn’t appear positive for the sector given that festival season is just round the corner; and the burden will be on end traveller,” said Mark Martin of Martin Consulting.
Global oil supplies were disrupted after Aramco’s oil facilities were targeted by drones attack. According to Bloomberg, Brent crude jumped $12 per barrel on Monday to around $72 per barrel.
Travel industry executives pointed out that airlines would be forced to pass on some of the increased costs on to the passengers depending on how long the latest crude crisis continue.
“The crude is a major determinant in the ticket pricing for airlines. Any rise in ATF will have an impact on the airfares. However, it is up to the airlines to decide how much they would pass on to the consumers,” said Balu Ramachandran, senior V-P, Cleartrip. According to Cleartrip, the average domestic airfares have been higher by 5-7% y-o-y since April due to grounding of Jet Airways.
Ixigo co-founder Aloke Bajpai also expects air travel to become costlier in the coming days. “ATF prices, which have been fairly stable for the past few months, might see an upward revision on account of higher jet fuel prices in the international market. However, any impact seen will be short term and will bounce back as it is not a systemic issue affecting crude demand,” Bajpai said.
Indiver Rastogi, president & group head-global business travel, Thomas Cook (India), said: “It is too early to comment on the impact that the sudden increase in crude oil prices will have on airfares. Despite headwinds in the past, be it geopolitical, rupee movement, etc, we have seen no slowdown in travel – travel continues to be a non-negotiable for Indians. While the upcoming festive season has already seen an uptick of approximately 5-10% in airfares for domestic and short haul international (Asia) routes starting October.”