New Delhi: Air passenger traffic may have staged a strong recovery in March, but a record hike in jet fuel prices on Friday is likely to strain airlines' finances.
In New Delhi, aviation turbine fuel (ATF) price rose a record 20.74% from a month ago to ₹1,12,924.83 per kiloliter. Prices in Kolkata, Mumbai and Chennai rose to ₹1,17,353.71, ₹1,11,690.61 and ₹116,583.71 per kiloliter, respectively.
Jet fuel prices are revised every fortnight and differ across states due to varying value-added taxes imposed on them. This is the seventh such hike in 2022. Brent crude traded at $105 on Friday, up 65% on an annual basis.
Jet fuel makes up 30-40% of the cost of running an airline in India, and the price hike will crimp profit margins of airlines that have reported huge losses over the last few quarters due to the pandemic.
Meanwhile, airlines have been pressing the government to bring jet fuel under the ambit of goods and services tax (GST) as it will give airlines the benefit of an input tax credit.
“The high taxes on jet fuel will need to be relooked," a senior airline official said, requesting anonymity.
Airlines may find it difficult to pass on the entire cost hike to passengers without impacting demand, the official said, adding that the positive is that so far, the market hasn't crashed despite high airfares.
On the brighter side, domestic traffic is seeing a surge in recent weeks, with a decline in active cases of covid.
According to data compiled by the aviation website NetworkThoughts, 10.26 million passengers flew on domestic flights during March, up 34.31% over February. Total flights deployed by airlines during March were 37.39% higher than during February.
"Air passenger traffic is expected to further improve in April-June quarter, which is traditionally a busy period for travel. However, rising oil prices will likely push a potential recovery by a few quarters," added the senior airline official.
