International oil prices soared to a 14-year high of nearly $140 a barrel last week amid fears of supply disruptions following Russia’s invasion of Ukraine. Rates have since fallen to about $100 a barrel.

With aviation turbine fuel (ATF) prices rising to an all-time high on Wednesday — the steepest yet — airlines are expected to raise fares by about 15% on major routes over the next 15 days.

In fact, airlines are expected to urge the Ministry of Civil Aviation to increase the cap on air fares introduced by the government during the pandemic times, which has set an upper and lower cap on air fares.

The surge in jet fuel prices brought about by the oil marketing firms after the recent upheaval in the international oil market led the prices to rise above Rs 1 lakh per kiloliter for the first time. The previous peak of Rs 71,028.26 per kl was recorded in August 2008, when the international price of crude oil reached $147 per barrel.

International oil prices soared to a 14-year high of nearly $140 a barrel last week amid fears of supply disruptions following Russia’s invasion of Ukraine. Rates have since fallen to about $100 a barrel.

ATF prices effective as of March 16 are up 18% in Delhi compared to two weeks ago at Rs 1,10,666.29 kilolitres. Compared to March last year, this is an increase of 86.3%. ATF prices are one of the largest cost components – about 40% – for airlines.

In fact, ATF prices have risen every two weeks since the start of this calendar year. In six hikes starting on January 1, ATF prices have increased by Rs 36,643.88 kl or nearly 50%.

With Wednesday’s hike, the ATF price rose to Rs 109,119.83 per kl in Mumbai, Rs 114,979.70 in Kolkata and Rs 114,133.73 per kl in Chennai.

Prices are revised on the 1st and 16th of each month based on the average international benchmark fuel price over the previous two weeks.

Current regulations allow airlines to increase fares for travel after every 15 booking days. This means that the increased fares on certain routes where the elasticity of demand is less will take effect if bookings for travel are made after 14 days.

Aviation industry executives said fares are expected to rise on the Delhi-Mumbai, Delhi-Bengaluru, Delhi-Chennai, Delhi-Hyderabad and Delhi-Kolkata routes. These routes are also expected to have the steepest hike on the Delhi-Mumbai route, where maximum capacity is deployed. Currently, the fares on the Delhi-Mumbai route range between Rs 2,400-14,000.

On shorter routes, such as Delhi-Lucknow or Delhi-Jaipur, fares are unlikely to increase as airlines face competition from roads and railways here. “Rates on shorter routes, which can be traveled by road, must be competitive or we will lose traffic,” said an industry manager.

“In terms of pricing strategy, the experiment will trigger willingness and ability to pay for air travel versus other choices to opt for train travel and reduce travel frequency. We note that this is the first time in our assessment that airfare 20 % or more expensive than comparable 2 AC air-conditioned train journeys, even for journeys lasting more than a month,” Kotak Institutional Equities said in a report. According to her analysis, in the pre-Covid times, air travel was comparable to 2 AC train fares two weeks out and 20-30% cheaper 4-6 weeks out.

According to Kotak, airlines will likely continue with high current fares for quite some time before reassessing their pricing strategy. “The route airlines are taking to raise prices opens up the possibility of retaining some of the increase even if crude oil prices fell,” it said.


This post Jet fuel sees steepest price hike: Air fares could rise 15% on major routes was original published at “https://www.financialexpress.com/market/commodities/jet-fuel-sees-steepest-price-hike-air-fares-may-soar-15-on-key-routes/2463319/”

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