With Brent crude prices touching the $57 per barrel level, Indian oil marketing companies on Thursday reduced jet fuel (ATF) prices by 12.5 per cent but this is not going to translate into lower airfares. Aviation Turbine Fuel prices have reduced by 26 per cent from the June 2014 level, while crude prices have crashed over 50 per cent.
Airlines in India, suffering from high losses by running below cost of operations, are unwilling to pass on the benefits to air passengers. “Had we run a super-profitable business, we could have reduced fares. Currently, all fares are below cost. Revenue per km in a sector like Delhi and Mumbai is maximum Rs. 7, which is far cheaper than auto and taxi fares. Fares in India are market-driven not cost-driven, so we are incurring heavy losses. With jet fuel prices moderating, we will recover some losses. There is no scope for slashing airfares,” said the finance head of an airline.
“No scope for air fare cut”
Airline officials said airfares in India were already low compared to U.S. and other countries and there was no leeway to cut fares.
“There is a huge mismatch in revenue and cost. The existing fares do not compensate the cost. In 1994 the fare between Delhi and Mumbai was Rs. 5,500 and after 20 years the average fare is Rs. 7,000. It should have been Rs. 15,000 considering the inflation and other input costs,” said an airline senior executive.
Travel agents are of the same view. “There is no scope to cut fares unless supplies [more seats offered in sectors] improve. Fares will be under control if government caps them,” said Subhash Goyal, Chairman, STIC Travel Group.
Some experts have hope. “After January 5, once average airline seat occupancy levels fall to the low 70s, we may see discount offers kicking in,” said Amber Dubey, Partner and India Head of Aerospace and Defence KPMG.
