07 Aug 2015 15:58 IST

Jet fuel gets cheaper, but airfares remain sky high

The drop in prices has already started reflecting on airlines’ profitability

Today, a litre of jet fuel is cheaper than a litre of petrol. But if you thought this would mean airfares will come down, think again.

While jet fuel (aviation turbine fuel) prices have fallen almost 34 per cent year-on-year, air ticket prices have not fallen commensurately. Rather, in some cases, they have increased.

When ATF prices soar, airlines are quick to pass on the burden to passengers via fuel surcharges. But when ATF prices drop — at ₹46.40 a litre (inclusive of taxes) in Delhi, it is now cheaper than petrol, which costs ₹64.47 a litre — they refrain from cutting ticket prices .

According to data from online travel agents, a Delhi-Chennai return flight booked 90 days in advance on July 1, 2014, cost ₹9,800, at a time when ATF was ₹70.16 a litre. One year later, when ATF was ₹51.26 a litre, the same return flight booked 90 days in advance costs over ₹10,500.

Consumers’ loss has been airlines’ gain. The drop in prices has already started to reflect on airlines’ profitability.

In the first quarter of this fiscal (2015-16), ATF accounted for 34 per cent of SpiceJet’s total cost, and the airline’s profit soared to ₹72 crore. In the same quarter last year, the outgo on ATF was 43.2 per cent of its total cost. The only other listed airline Jet Airways is yet to announce its results.

However, industry experts have a different take. They argue that international prices of ATF are still much lower than those in India. According to industry data, ATF is available at ₹30-35 a litre in other regional hubs such as Singapore and Dubai.

“The fall in ATF prices is far less than the fall in global crude oil prices. It is naive to expect an across-the-board fare decrease. Increasing competition does force airlines to go for limited period flash sales and that should be exploited by bargain hunters,” said Amber Dubey, Partner and India Head, Aerospace and Defence at KPMG.

Besides, the high tax structure in India compensates for the drop. ATF needs to be sold at international prices for an overall lowering of fares, he said.

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