Will oil price rise affect air fares? Here’s what experts say

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Updated: September 17, 2019 10:03:21 PM

Crude prices have jumped after drone attacks on two oil facilities in Saudi Arabia, which accounts for around 10 per cent of the global oil production.

On Monday, an Air India official said that a sustained increase could result in higher ticket prices. (Representational image)On Monday, an Air India official said that a sustained increase could result in higher ticket prices.
(Representational image)

The rise in oil prices will increase costs for airlines, but it is too early to assess the impact of sudden increase in prices on airfares, according to industry stakeholders.

Crude prices have jumped after drone attacks on two oil facilities in Saudi Arabia, which accounts for around 10 per cent of the global oil production.

A Vistara spokesperson said airfares are based on multiple factors such as demand, supply, competitive intensity, and do not have direct linkage to specific costs.

“However, rise in oil prices would certainly increase costs, affecting an industry that anyway has much higher average costs in India, but some of the lowest fares in the world,” the spokesperson said.

On Monday, an Air India official said that a sustained increase could result in higher ticket prices.

“We believe that the current spike is an initial surge and we expect stabilisation as this will have a negligible impact on the airfares. We have seen an 8-10 per cent surge in airfares,” Daniel D’souza, President & Country Head, Leisure at SOTC Travel said.

After soaring as much as 20 per cent to USD 71.95 per barrel on Monday, Brent crude futures corrected slightly to trade at USD 67.97 per barrel on Tuesday.

Thomas Cook (India) President & Group Head (Global Business Travel) Indiver Rastogi said it was too early to comment on the impact that the sudden increase in crude oil prices would 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 non-negotiable for Indians. Currently, with most travellers having already pre-booked and made full payment for the upcoming festive holiday season, we anticipate no immediate impact,” he said.

The upcoming festive season has already seen an uptick of approximately 5-10 per cent in airfares for domestic and short-haul international (Asia) routes starting October, he noted.

On Monday, the Air India official said that the airline’s monthly fuel bill might rise by at least Rs 50 crore if crude oil prices continue to surge.

The national carrier’s fuel bill is around Rs 500 crore every month.

As per the official, the bill could go up by at least Rs 50 crore if oil prices jump 10 per cent from USD 60 per barrel level on a sustained basis.

An increase in oil prices could also result in fares going up as costs would have to be passed on, he said.

On Saturday, drone attacks targeted Abqaiq, the site of the largest oil processing plant run by the Saudi state oil company, Aramco, and the Khurais oilfield in Saudi Arabia.

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