ATF Prices: Will rising fuel prices impact air travel and passengers?

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Aviation turbine fuel prices rose unexpectedly on June 16. After this hike, ATF prices hit an all-time high in metros like Delhi, Mumbai, Chennai and Kolkata. For domestic airlines, ATF costs are Rs 1,41,232.87 per kl (Delhi); Rs 1.46,322.23 per kl (Kolkata); Rs 1.40,092.74 per kl (Mumbai) and Rs 1.46,215.85 per kl (Chennai).

Jet fuel prices for domestic airlines on international routes are $1,372.71 per kl (Delhi); $1,412 per kl (Kolkata); $1,369.12 per kl (Mumbai); and $1,367.56 per kl (Chennai).

Graphic: Pragati Srivastava

Reacting to the upside, SpiceJet CMD Ajay Singh said ATF fares had increased by more than 120% since June 2021. He said: “The sharp increase in jet fuel prices and the depreciation of the rupee has left airlines national airlines have no choice but to increase fares immediately and we believe that a minimum 10-15% increase in fares is necessary to ensure that operating costs are maintained.

Himank Tripathi, president of external affairs at EaseMyTrip, told Business Today earlier this year, “If the fuel your planes run on increases, then the overall operational costs increase. They have no choice but to increase their tariff.

He added: “Second, the price of fuel. By the time it comes to stability in normality, I think the rates will come down. Another expert says it would not be easy to pass on rising operating costs to consumers in a price-sensitive market like India.

Vice President and Head of Research at Share India, Ravi Singh, said: “A rise in jet fuel prices will certainly affect operational costs and profit margins for airlines. However, airlines may struggle to pass the cost on to passengers due to price-sensitive sentiments in India. If this [airlines passing the raised costs to passengers] occurs, an impact on demand could be clearly seen.

In a bid to make the aviation sector more viable for airlines and affordable for customers, IndiGo CEO Ronojoy Dutta has advocated bringing the ATF under the Goods and Services Tax (GST).

He said: “We have been in discussions with the government to make ATF subject to GST as it brings input tax credit benefits. We believe such measures are needed more than ever to offset these rising costs and make aviation viable for airlines and affordable for consumers.

ATF rates are reviewed on the 1st and 16th of each month taking into account equivalent international market rates and local taxes. Jet fuel accounts for approximately 40% of an airline’s operating costs.

Meanwhile, shares of SpiceJet and InterGlobe Aviation were impacted by rising ATF prices. Shares of SpiceJet fell 3.97% to a 52-week low of 42.25 rupees against the previous close of 44 rupees on BSE.

InterGlobe Aviation shares fell 0.81% to Rs 1,721.15 from the previous close of Rs 1,735.30 on BSE. InterGlobe Aviation shares traded below the 5-day, 20-day, 50-day, 100-day and 200-day moving averages in early trades.

Also read: Jet fuel peaks at Rs 1.41 lakh per kl in Delhi; SpiceJet calls for government intervention

Also read: SpiceJet, InterGlobe Aviation shares fall up to 4% as jet fuel rates hit record high

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