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Flights may cost more thanks to Saudi oil crisis

September 17, 2019 11:58 IST

The national carrier, which is already struggling with its fuel payments, spends Rs 6,000-7,000 crore annually on fuel. A 10 per cent hike in crude price would mean over Rs 50-58 crore of extra costs for the airline. 

Image used for representational purpose. Photograph: Reuters

A sustained increase in crude oil prices may force domestic airlines to advance the planned fare hikes from later this month. 

“Average airfares may go up 10-15 per cent from the current level for travel in October-November. Fares are expected to increase from last week of September but, if crude oil price remains elevated, airlines may hike fares earlier,” said an executive from a private airline. 

While Union Petroleum Minister Dharmendra Pradhan said there would be no impact on oil supplies to India, the attack on the oil refineries at Saudi Arabia rattled the stock market. IndiGo and SpiceJet slid 2.7 per cent and 4 per cent, respectively, on BSE. 

 

“If crude oil price keeps rising, we will have to decide on hiking airfares. We are closely monitoring the prices,” a senior Air India executive said on Monday. 

The national carrier, which is already struggling with its fuel payments, spends Rs 6,000-7,000 crore annually on fuel. A 10 per cent hike in crude price would mean over Rs 50-58 crore of extra costs for the airline. 

While the domestic air traffic has grown a modest 3 per cent between January and July, airlines have benefitted from low fuel prices compared to last year. A spike in crude oil price coupled with a weak rupee would hurt. So far, airlines have also shied away from increasing fares due to fear of hurting demand. 

Sharat Dhall, chief operating officer (B2C) of Yatra.com, said, “So far, the travel demand has not been very strong and I believe airlines will decide on fare hikes in a fortnight." 

Last minute airfares are being sold from upwards of Rs 2,000 and Rs 3,000 on the busy Mumbai-Bengaluru and Mumbai-Delhi routes now. 

"The impact of the attack on Saudi oil field on Indian airlines will depend upon the duration of impact on supply. Minimal impact is expected in the second quarter.

But Q3, which was looking very positive till now, could be affected," aviation consultancy CAPA said. 

"Most airlines will be comfortable with crude oil price in range of $ 60-65 a barrel. There will be an impact on profitability in the second quarter because of low fares but it will be better than last year," the private airline executive quoted earlier said. 

CRISIL had last week projected ticket prices to rise 7-9 per cent because of limited capacity addition since grounding of Jet Airways. The 7-9 per cent rise in airfares would be the highest since FY13, when Kingfisher Airlines went belly up, the agency said.

With inputs from PTI.

Aneesh Phadnis in Mumbai
Source: source
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