If you are planning your summer holidays, brace yourself for higher airfares, which have shot up at least by 20-25% due to rising crude oil prices. While petrol and diesel prices have remained untouched as the daily price revision was put on hold in November, aviation turbine fuel (ATF) on Wednesday saw its steepest ever increase of 18%, and now costs ₹110,666.29 per kilo litre (kl) in Delhi. This is 50% more than the ATF cost in the beginning of the year, and twice as much as last March.
In anticipation of this hike, airlines have already raised airfares earlier this month. A one-way airfare between Delhi and Mumbai rose by 26%, climbing up to ₹5,119 in the first week of March as compared to the same time in February; Kolkata to New Delhi saw an increase of 29% to ₹6,114 from ₹4,725; and Hyderabad to New Delhi went up by 26% to ₹5,253 from ₹4,177, according to data sourced from travel booking portal ixigo.
“No further price hikes are expected, but it all depends on the global crude prices,” Aloke Bajpai, group CEO and co-founder, ixigo, said.
With March being a lean month for travellers, airlines too are a worried lot as they find it challenging to pass on the increasing cost of operations to consumers. “Airfares are a function of market dynamics and are decided basis multiple factors like the balance of demand and supply, market sentiment, competition, etc. The resumption of scheduled international flights from March 27 is expected to stimulate demand and we hope it will help the industry in managing the increase in ATF price,” a Vistara Airlines spokesperson said.
Another airline official said, “Fuel constitutes roughly 30%-40% of the total cost for airlines in India. We can imagine the pressure on the bottom line in an already challenging environment.”
Another challenge is that tickets are a commodity purchased in advance. “50% of my sales for a month are from advance sales made two to three months back. When fuel prices rise, I have only 50% of inventory left to transfer some of the increase,” a senior airline executive explained.
Airlines have, therefore, made a renewed appeal for what is a long-standing demand to bring ATF under the Goods and Services Tax (GST) regime. IndiGo CEO Ronojoy Dutta has said that the time to do so is now “more than ever before”. Airlines pay 11% custom duty on ATF, in addition to which the States levy Value Added Tax (VAT), which is at 25% in Delhi and Maharashtra, and higher in Tamil Nadu, where it is 29%.
“If ATF is brought under GST, we will have one rate for the entire country, which can be offset through the GST charged to the customer,” one of the airline officials quoted above said.
Finance Minister Nirmala Sitharaman said last month that she would take up the matter before the GST Council in its next meeting. Civil Aviation Minister Jyotiraditya Scindia, since taking over the charge of his Ministry in 2021, has convinced 12 States to reduce ATF from 25%-30% to 1% to 4%, in addition to the 11 States that were already doing so.
Despite the surge in oil prices, travel companies are optimistic about the demand for travel. “Due to a spike in the overall demand for travel, especially to leisure destinations, travel bookings for the upcoming summer season are expected to remain high,” a spokesperson for travel booking website Cleartrip said.
