On 16 July, oil marketing companies (OMCs) slashed the aviation turbine fuel (ATF) by 2.2 percent or by Rs 3,084.94 per kilolitre. This is the second reduction in prices after eleven continuous hikes since the beginning of 2022 which led to rates almost doubling in six months.
Finance Minister Nirmala Sitharaman on 1 July , said the government will review every fortnight the new taxes levied on crude, diesel and ATF based on international prices. She said these are "extraordinary times" and oil prices are internationally unbridled.
After being forced to stay at home for close to two years since the onset of the pandemic, many people are eager to travel and get on with their pending vacation plans, now that the COVID-19 guidelines have been eased.
The only shocker: really expensive airline tickets, even for domestic flights.
What is making air tickets costly? Here's all you need to know.
Why have the prices of airplane tickets skyrocketed?
The sharp increase in ATF over the past six months, coupled with the depreciation of the rupee, have left the domestic airlines with soaring air ticket prices.
These factors have "left us with no choice but to immediately raise airfares," Ajay Singh, Chairman and Managing Director, SpiceJet told PTI recently.
But what's behind the spike in ATF?
In December 2021, ATF was priced at around Rs 76,000 per kilolitre. This has almost doubled since then.
A big reason for this is the fact that ATF prices are connected to global crude oil rates which have spiked steeply owing to the Russia-Ukraine conflict. But, oil prices have dropped down to pre-war levels.
The international benchmark of Brent, cut down to $94.45 a barrel, closing at $96.84 on 23 February, a day before Russia invaded Ukraine. The US marker of West Texas, dwindled to $90.56, which closed at $92.10 previous to the crisis, reported This Day.
How does ATF impact India's airfares?
According to industry experts, ATF makes up about 30-40 percent of an airline's running cost. Any increase in the cost of the jet fuel directly affects the profit margins. Hence, rising fuel costs mean tickets become more expensive, putting the burden on travellers.
Airline companies are also alarmed over rising ATF prices, saying that consistent rise in jet fuel prices will impact the profitability of Indian carriers. Further the rise in plane tickets can impact the demand for air travel.
“While the traffic was 3-4 percent higher in the first week of June on a month-on-month basis, it has slowed down. Growth has remained flat in the first fortnight of June on a month-on-month basis,” Ameya Joshi, founder of aviation blog Network Thoughts, told Business Standard.
In addition to that, Indian airlines are already struggling with the fall in the value of the rupee since fuel, maintenance, and overhaul costs, lease payments, are all priced in US dollars.
A report on The Indian Express also stated that most of Asia’s airlines don’t hedge jet fuel, making them more vulnerable to price increases.
Will ATF costs continue to increase?
All indicators point to that direction. SpiceJet has announced that a minimum increase of 10 to 15 percent in ticket pricing is required to meet the increasing operational costs. IndiGo also expressed concerns over the rising fuel prices and sought government intervention.
“To facilitate recovery of the aviation sector and to make flying viable for everyone, we would request the government to at least bring ATF under GST so that the benefit of the input tax credit can be availed.”IndiGo's statement
“ATF prices have increased by more than 120 per cent since June 2021. This massive increase is not sustainable and governments, central and state, need to take urgent action to reduce taxes on ATF that are amongst the highest in the world," SpiceJet's Ajay Singh added, in his recent statement.
Some airlines had also request the government to remove the upper and lower price bands for domestic flights tickets that were brought in 2020 soon after services resumed after the pandemic mandated lockdown.
The decrease in ATF prices has been a breath of relief for the airlines struggling with high ATF prices and associated costs.