Summary of this article
ATF prices rise by 10%.
Airfares may increase soon.
Middle East tensions fuel concerns.
Amid the global fuel surge, air travel in India is expected to get more costly in the coming months. The oil marketing companies (OMCs) have increased the price of aviation turbine fuel (ATF) by around 10 per cent. This hike comes at a time when concerns over global crude oil prices and geopolitical tensions in the Middle East are tense, and there’s no end in sight soon.
ATF is one of the highest operating costs for airlines, which accounts for a significant share of the total expenses. As per a report by NDTV, domestic jet fuel prices are rising from Rs 105 per litre to Rs 115 per litre. Airlines are most likely to face fuel bills higher than before. This price hike can be a reason that, in the near future, the airlines will pass on this cost to the passengers.
The increase in fuel prices is linked to a new price stabilisation mechanism. This was introduced by state-owned oil retailers. Under this framework, airlines will have the option to lock in ATF prices for up to three years. This provides predictability and reduced exposure to massive changes in prices. The proposed system helps airlines in managing volatility and staying protected from price surges.
Airlines that choose to be a part of this scheme will pay a fixed ATF price of Rs 115 per litre for the next three years. This will be the clause, even if the fuel prices decline during that period. As per a report by Reuters, in case the global rates decline, the additional amount paid by the airline will be used to replenish the stabilisation fund. Airlines that do not become a part of this will continue to buy at the set price rates; however, they will also be exposed to the possibility of extreme price hikes that can affect their financial factors. The report further cited that no Indian airline has yet opted for the scheme. Considering that jet fuel costs 40 per cent of any airline’s operating costs, the decision on whether to participate or not can be a big decision.
Concerns about fuel costs have intensified severely because of the ongoing instability in the Middle East. Disruptions in oil supply routes and uncertainty surrounding the Iran conflict have pushed the global prices of energy resources. Aviation fuel prices tend to track crude oil movements, and any sustained rise in oil markets can affect airline economics severely.
In addition to this, the Indian government has approved a Rs 10,000 crore ATF price stabilisation fund to support oil marketing companies and help in sharing the impact of the extreme price surge on airlines and passengers. This fund is intended to act as a financial buffer during such tense periods.
Globally, the airline industry groups have already issued warnings about higher jet fuel prices that could lead to fare increases. The International Air Transport Association (IATA) has said that a constant price hike would be tough for airlines to absorb for so long, which indicates a possibility of an increase in ticket prices in the future.
For domestic travellers, the immediate impact may not be uniform across all the routes. Airlines often use promotional fares, competitive pricing, and advance bookings to manage the demand.
