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IndiGo: Costlier fuel: IndiGo hikes domestic fares, others may follow suit

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NEW DELHI: Like driving, flying is all set to get more expensive due to rising fuel prices. Low cost carrier IndiGo has hiked fares of short distance flights (less than 1,000 km) by Rs 200 and longer flights within the country by Rs 400 from Wednesday. India’s largest domestic airline will do so by reintroducing fuel surcharges. However, people who have booked IndiGo’s tickets in advance will not need to pay this extra amount. This will be applicable only for new bookings for travel from and after Wednesday.

While most other airlines did not comment till the time of filing this story whether they too will hike fares, higher jet fuel prices have impacted all of them and they are likely to do the same. Vistara said it does not have a separate fuel surcharge and adjusts “fares as required based on market conditions.”

Aviation turbine fuel (ATF) prices have risen by almost 25% since January 2017 to this month in the main aviation hubs of Delhi and Mumbai. Since jet fuel accounts for almost 40% of an airline’s operating cost, this hike has led to a sharp increase in costs. In addition, the weakening of the rupee has meant airlines’ costs fixed in dollar terms like aircraft lease rentals have also gone up.

IndiGo chief commercial officer Sanjay Kumar said: “With ATF prices in India having risen around 25% in the current month compared to the same period last year, and at the highest in last three years, the airline is compelled to pass some of the increased cost burden to customers as a fuel surcharge. In the context of the past decade, where airfares in India have reduced by nearly 50% in real terms (adjusted for inflation), we are confident that this marginal increase in the form of fuel surcharge will not have any significant adverse impact on demand.”

Apart from costlier ATF, “the depreciating Indian rupee is an additional cost burden on Indian carriers. Given this scenario for a low cost airline, levying a surcharge has become inevitable. A sum of Rs 200 will be added on routes less than 1,000 km distance, and Rs 400 on routes longer than 1,000 km distance. The surcharge will be applicable on all domestic trips and will come into effect at midnight on Thursday,” the airline said.

Given its scale of domestic operations — over 1,000 daily flights with almost 40% share of domestic market — IndiGo has been the first to hike fares.

Airlines are hoping that costlier tickets do not affect flyer numbers as India has been the world’s fastest growing domestic aviation market globally for almost last three years. “We are hopeful that the 1.5 lakh plus passengers flying with IndiGo each day will continue giving us support. We assure our customers that this move of reintroduction of fuel surcharges will not much impact the low fares that are being charged, and will not change IndiGo’s positioning as a low cost carrier,” Kumar added.

While ATF prises are rising and the rupee weakening, airlines have so far not been able to pass on the increased cost to flyers by hiking fares due to stiff competition. This has begun taking a toll on their financial health.

Jet Airways Group lost Rs 1,040 crore in the January-March, 2018 (Q4 FY 18), as opposed to a profit of Rs 583 crore in same quarter of previous fiscal mainly due to increased costs. IndiGo’s Q4 FY 18 net profit had fallen 73% from a year ago from Rs 440 crore to Rs 117.6 crore. IndiGo’s fuel cost during the January-March, 2018, quarter had risen to Rs 2,338 crore from Rs 1,751 crore a year ago. SpiceJet had said its bottomline was impacted by Rs 81.4 crore in the quarter ended March, 2018, due to the 12.7% hike in crude oil prices.

Updated: May 29, 2018 — 2:56 pm

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