ATF hike may undo airlines’ austerity gains

High jet fuel costs are back to haunt airline companies, just when they appeared to have left the turbulence behind with some deft manoeuvring on the costs front and help from falling crude oil prices.

With crude oil prices headed north again, state-owned oil marketing companies (OMCs) Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp on Sunday hiked aviation turbine fuel (ATF) prices by around 2.4%.

With this, ATF prices will increase by Rs 948 to Rs 40,423 per kilolitre (KL) in New Delhi effective Sunday midnight.

In Mumbai, home to nation's busiest airport, ATF price will go up by Rs 988 to Rs 41,710 per KL.

This is the second time the OMCs have increased ATF prices this month.  On November 1, the companies had raised jet fuel prices 9%.

The three oil PSUs revise jet fuel prices on the first and the 16th of every month based on the average global oil price in the previous fortnight.

Kapil Kaul, chief executive officer - India and Middle East, Centre for Asia Pacific Aviation, feels the gains made by airlines in the last 3-4 months would be erased if oil prices continue to spiral up in this manner.

“Cost is a critical concern for airlines. It (ATF price increase) could especially hit them hard at a time when they will soon be entering into lean period (mid-January to mid-March). This is the time when most of the damage could be done,” he said.
Kaul’s airline consultancy firm expects crude move to up to $100 per barrel by December from $75-76 per barrel currently.

M Thiagarajan, managing director of Paramount Airways, says the situation is much better than last year when crude oil had shot up to over $148 per barrel, but could worsen as prices rise.

The owner of the all-business airline sees oil prices at $80-90 per barrel in the winter quarter.

Airlines will look at ways and means to minimise the impact of the rising ATF prices on their business, says Thiagarajan.

“If the ATF prices go beyond a certain level, then we (airlines) will have to look at pushing up the fuel surcharge again,” he says.

Domestic airlines have already increased fuel surcharges by around Rs 200 after ATF prices shot up early this month.