Airlines cut fares as jet fuel prices fall steeply

Aviation turbine fuel (ATF) price, which has been slashed by around 30% since November last year and 11.27% on Sunday, slipped below diesel price that have remained unchanged despite crude falling over 50% in the last one year.

After Sunday's cut, ATF price in Delhi has slipped from last month's Rs52.42 per litre to Rs 46.51 per litre, which is cheaper than the diesel price of Rs 51.52 per litre in the city. Petrol and diesel prices have remained unchanged as per the fortnightly revision of fuel prices even as non-subsidised liquefied petroleum gas (LPG) price has been reduced by Rs103.5 per cylinder to Rs 605 per cylinder on tumbling global oil prices.

The easing of jet fuel prices over the last few months is reflected in the deep discounts being offered by domestic airlines, which has brought down the average fare on a sector like Mumbai-Delhi to Rs3500-4000 (inclusive of all taxes and charges) from over Rs 5000 a month back.

An industry observer, who did not want to be named, said fares are half of what they were last year.

"If you look at the fares of tickets booked in 7 days, they are half of what they were earlier. Fuel surcharge has been done away with by all airlines and airlines are giving more and more seats on discounted fares," he said.

Domestic carriers are already indulging fare war, which was sparked by budget carrier SpiceJet offering five lakh seats at Rs 1499 per seat last week, and then extending the sale for a few more days. Rivals AirAsia and IndiGo followed suit by lowering their tickets. The latest to jump into the fray are full service airlines Jet Airways and state-owned Air India.

The latest reduction in jet fuel prices provides a benefit of around 10-13% in fuel cost for an airline; "It's a big respite for the airline. If they were spending Rs 100 crore on fuel a year back, they are today spending just Rs 70 crore," said a source in the industry, who is not authorised to speak to the media.

An airline's spend on fuel constitutes the huge share in its operating cost. It used to be as high as 48% for no-frill airlines when global oil prices were at their peak. An industry source said today it is down to less than 30%.

"Since fares are already at its lowest, the airlines will use this opportunity to reduce their losses," he said.

Sanjiv Kapoor, chief operating officer (COO) of the beleaguered airline SpiceJet, tweeted that despite the cut, ATF prices were still on the higher side. "ATF rates cut further 11%. Still 50% higher than 2009 but great relief for airlines," read his twitter.

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