Airlines face heat as jet fuel prices hit record high

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NEW DELHI : Airlines relieved by last week’s decision to resume regular international flights have been blindsided by Wednesday’s record rise in jet fuel prices, which promises to put a strain on their finances.

In New Delhi, the price of aviation turbine fuel (ATF) increased by 18.3% to reach 1 10,666.29 per kilolitre, crossing the 1 lakh mark for the first time. Prices in Kolkata, Mumbai and Chennai have risen to 1,14,979.70, 1,09,119.83 and 114,133.73 per kilolitre, respectively.

Kerosene prices are revised fortnightly and differ from state to state due to the different value added taxes imposed on them. This is the sixth such rise in 2022 and the second this month. Brent crude was trading at $104.80 on Wednesday, up 54% on a yearly basis.

Jet fuel accounts for 30-40% of an airline’s operating cost in India, and rising prices will squeeze profit margins for airlines that have reported huge losses in recent quarters due to the pandemic.

According to Suprio Banerjee, vice president and sector head of the rating agency Icra, the profitability of airlines in India is closely linked to jet fuel prices, which increased by 57.2% in March 2022 compared to a year ago. one year old. “Additionally, in India, jet fuel prices are much higher than global benchmarks due to high levels of taxation,” Banerjee said. , rising fuel prices will definitely have a negative impact on the short-term earnings profile,” he added.

Airlines have been lobbying the government to make jet fuel subject to Goods and Services Tax (GST) as it will get an input tax credit, IndiGo chief executive Ronojoy said. Dutta, in a statement. “We believe such measures are needed more than ever to offset this rising cost and make flying viable for airlines and affordable for consumers. The rationalization of taxes will result in strong growth for the sector, creating a multiplier effect throughout the economy, promoting trade, tourism and job creation.” .

A spokesman for Vistara, a joint venture between Tata Sons and Singapore Airlines, said the airline hoped the resumption of scheduled international flights from March 27 would boost demand and help offset the rising price of jet fuel. Spokespersons for SpiceJet, GoFirst, AirAsia India and Air India did not respond to emails seeking comment.

Airlines may struggle to pass on rising jet fuel costs to passengers, a senior national airline executive has said.

“A large number of Indian air passengers are price sensitive, and the full pass-through of costs could impact demand, which is only recovering after a huge drop during the pandemic,” the executive said in the guise of a diary. ‘anonymity.

On the bright side, domestic traffic is seeing an increase in recent weeks, with active covid cases declining. India recorded 342,520 domestic arrivals on March 15, according to the latest data from the Ministry of Civil Aviation, which is well above the less than 200,000 daily passengers recorded at the end of December 2021-beginning of January 2022. “The The need of the hour is to include jet fuel under the GST regime. This will not only help airlines, but will also stimulate demand,” added the executive quoted above.

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