ATF price: Will the fuel rate hike impact air travel and passengers?

Aviation turbine fuel prices saw an unexpected rise on June 16. After this hike, ATF prices hit an all-time high in metros like Delhi, Mumbai, Chennai and Kolkata. For domestic airlines, ATF costs stand at Rs 1, 41,232.87 per kl (Delhi); Rs 1, 46,322.23 per kl (Kolkata); Rs 1, 40,092.74 per kl (Mumbai) and Rs 1, 46,215.85 per kl (Chennai).    

Jet fuel prices for domestic airlines on international run cost $1,372.71 per kl (Delhi); $1,412 per kl (Kolkata); $1,369.12 per kl (Mumbai); and $1,367.56 per kl (Chennai).   

Reacting to the hike, SpiceJet CMD Ajay Singh said ATF rates have gone up by over 120 per cent since June 2021. He said, “The sharp increase in jet fuel prices and the depreciation of the rupee have left domestic airlines with little choice but to immediately raise fares and we believe that a minimum 10-15 per cent increase in fares is required to ensure that cost of operations is sustained.”  

President of External Affairs at EaseMyTrip Himank Tripathi told Business Today earlier this year, “If the fuel with which your planes are running goes up, then the whole operational cost goes up. They have no other option but to increase their fare.”  

He added, “Second is the price of fuel. The moment it comes down to a stability part to the normalcy, I think fares will come down.” Another expert states that it would not be easy to pass on the rising operational costs to consumers in a price-sensitive market like India.   

Vice President and Head of Research at Share India Ravi Singh noted, “A rise in jet fuel prices is definitely going to hit the operational cost and profit margins of the airlines. However, airlines may find it difficult to pass the cost to passengers due to price-sensitive sentiments in India. If that [airlines passing the raised costs to passengers] happens, an impact on demand could be clearly seen.” 

In a bid to make the aviation sector more viable for airlines and affordable for customers, IndiGo CEO Ronojoy Dutta advocated bringing ATF under the ambit of goods and services tax (GST).   

He said, “We have been in talks with the government to bring ATF under GST as it brings benefits f inputs tax credit. We believe that such measures are needed now more than ever, to offset this increase in cost and make aviation viable for airlines and affordable for consumers.”  

ATF rates are revised on the first and the 16th of every month by factoring in equivalent rates in international market and local taxes. Jet fuel makes up around 40 per cent of the running cost of an airline.   

Meanwhile, shares of SpiceJet and InterGlobe Aviation were impacted by the rise in ATF prices. SpiceJet shares went down 3.97 per cent to hit 52-week low Rs 42.25 against the previous close of Rs 44 on BSE.     InterGlobe Aviation shares fell 0.81 per cent to Rs 1,721.15 against the previous close of Rs 1,735.30 on BSE. InterGlobe Aviation shares traded lower than 5-day, 20-day, 50-day, 100-day, and 200-day moving averages in early trade.  

Also read: Jet fuel peaks to Rs 1.41 lakh per kl in Delhi; SpiceJet seeks govt intervention

Also read: SpiceJet, InterGlobe Aviation shares fall up to 4% as jet fuel rates hit record high