Higher cost of fuel: Fares rise, air traffic volume growth slows down in May

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New Delhi | Updated: June 26, 2018 7:23:38 AM

Airlines are understandably looking to pass on the higher cost of fuel; the price of ATF (aviation turbine fuel) was up by 38% year-on-year in May.

Spot airfares in May and June are up by about 10-12%. (PTI)

Spot airfares in May and June are up by about 10-12% over the same period last year, causing a slight slowdown in traffic growth. Data from the Directorate General of Civil Aviation (DGCA) showed passenger traffic growth slowed to 17% year-on -year in May, the slowest annual increase reported in May in the last four years.

Airlines are understandably looking to pass on the higher cost of fuel; the price of ATF (aviation turbine fuel) was up by 38% year-on-year in May. In April, fuel prices were up a more modest 19% year-on-year. An estimated 11.85 million people flew in May on domestic carriers; in a growing economy the number should have been higher, analysts point out.

They point out the continuous pressure on yields — as airlines are unable to pass on the entire jump in fuel costs — could impact margins of carriers. “Slower traffic growth in May 2018 — a seasonally strong month — is concerning in the backdrop of declining passenger yields and higher ATF prices,” analysts at Axis Securities observed.

They added that the continued pricing competition could significantly erode margins via pressure on yields and impact performance in the current quarter. Thanks to enough capacity having increased by about 10% over that in 2017, all carriers reported a lower occupancy — for the top five airlines, the fall was in the region of 200 basis points year-on-year.

The total passengers expected to be handled by all the country’s airports in 2018 is around 305 million, Kotak Institutional Equities noted, citing data from the Airports Authority of India, DGCA, industry, companies and itself. In 2013, this number was 159 million.

Arun Nayal

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