As Indian airlines navigate through a brutal COVID landscape, rising fuel prices are adding more stress on an already-limping sector. With signs of gradual recovery on the horizon, Indian carriers are faced with a tactful task of maintaining reasonable airfares to attract passengers yet somehow take on the snowballing fuel prices without bleeding too much cash.
Fuel becomes dearer
COVID isn’t the only troublemaker for carriers in India today. Another disturbing trend for the past few weeks has been keeping all airlines in the country on edge. Jet fuel prices, influenced by crude oil rates, continue to soar upward, making aviation recovery challenging.
Around mid-February, jet fuel cost ₹90,519.8 (approx. $1,190) per 1,000 liters in New Delhi. On Thursday, Brent crude went up as high as $123.38 a barrel, pushing aviation fuel price in New Delhi to ₹93,530.66 (approx. $1,230) per 1,000 liters.
The ongoing Ukraine-Russia conflict has impacted oil rates significantly, reaching levels not seen since 2013. In fact, some analysts predict this figure to go up to $125 a barrel, adding another layer of complexity to the recovery plan of already stressed-out carriers in India.
Airlines are likely to find it difficult to keep airfares low with costly fuel. Photo: Getty Images
While a hike in fuel price affects airlines around the world, India has its unique set of challenges. For the first time since air traffic plummeted due to the Omicron variant, Indian carriers are seeing signs of recovery. It doesn’t look good for airlines to welcome returning passengers with increased airfare driven by costly fuel.
Indian passengers are some of the most price-conscious in the world. With low-cost airlines making air travel affordable significantly in the last two decades, travelers have become accustomed to a certain threshold when purchasing air tickets.
But given that jet fuel accounts for about 30 to 40% of operating costs for carriers in India, it’s looking tough for airlines to absorb the added expenses without passing them down to customers. Clearly, airline officials have their work cut out for them to manage this delicate balancing act.
ICRA, an independent credit rating agency in India, recently reported that the domestic aviation industry in the country is facing a net loss of ₹25,000-26,000 crore (approx. $3.2-3.4 billion) this financial year. And elevated jet fuel prices and fare caps will further eat into the airlines’ profitability.
The report stated,
“Further, elevated aviation turbine fuel (ATF) prices, (which were 68 per cent higher year-on-year basis in 11 months of the ongoing fiscal FY2022) and continued fare caps continue to pose a major challenge for the profitability of the airlines.”
Daily domestic traffic in India is hovering around the 300K mark for a few days, so there’s still some distance to cover before reaching the 400K figure of the pre-COVID days. However, Suprio Banerjee, vice-president and sector head of ICRA Ltd, is hopeful that the aviation sector in the country still has hope, adding,
“…the expected commencement of scheduled international operations and the waning ‘Omicron’ wave will result in a notable recovery in passenger traffic in FY2023.”
For now, we can only wait and watch what the next few months have in store for aviation in India.
Can artificial intelligence help airlines bridge the gap between meeting net-zero goals and driving their businesses forward?
About The Author