Rising ATF Prices: Airlines need to rejig pricing, discounting strategies, says ICRA

From an average of Rs 48.65 per litre last month for domestic airlines in four metros, ATF has become dearer at Rs 54.62 per litre from October 1.

New Delhi | Updated: October 24, 2017 2:30:54 am
aviation turbine fuel, civil aviation, ATF, India's civil aviation sector, domestic airports in india, International airports in India, International Air Transport Association, IATA, CST Act, Goods and service tax, GST laws, indian express, business news While jet fuel prices for domestic airlines have remained at the same levels during the calendar year 2017, on a year-on-year basis, the rates are almost 13 per cent higher.

Written by: Veerangana Singh

The 16.2 per cent year-on-year growth in domestic air traffic during April-August notwithstanding, Indian carriers might need to re-look their pricing and discounting strategies to deal with the uptrend in the prices of aviation turbine fuel (ATF), a research note by ICRA said.

“The domestic passenger traffic growth remained range-bound during the current fiscal as reflected in 16.2 per cent year-on-year growth during 5MFY18. This is marginally higher than y-o-y traffic growth of 15.7 per cent for the month of August 2017, which in turn was slightly better as compared to the previous month,” ICRA stated, adding that it estimated the traffic to grow between 15-17 per cent during FY18, against the 20 per cent growth maintained in the last two consecutive years.

From being priced at an average of Rs 48.65 per litre last month for domestic airlines in four metros, ATF has become dearer at Rs 54.62 per litre from October 1. While jet fuel prices for domestic airlines have remained at the same levels during the calendar year 2017, on a year-on-year basis, the rates are almost 13 per cent higher.

“While on one hand, the passenger traffic growth is witnessing moderation on the back of increased efforts by airlines to strengthen the yields, on the other, the aviation turbine fuel (ATF) prices are on a sequential uptrend from August 2017 to October 2017. In such a scenario, the industry might need to re-look at various strategies including pricing, discounting and cost efficiency measures,” said Kinjal Shah, VP and co-head, corporate sector ratings, ICRA.

Furthermore, industry experts and analysts have also suggested that while the airlines may pass on a part of the fuel price hike to customers to offset their costs, India’s civil aviation sector is in need of urgent policy interventions to ensure that an eventual rise in the crude oil price does not end up stunting the domestic passenger traffic growth.

Even as ICRA has ruled out any sizeable impact of the ATF price increase on the industry’s profitability during the second quarter of 2018 fiscal, it pointed out that it will be important to see the industry’s performance during the third quarter, considering it will be a peak season for airlines.

(Veerangana Singh is an intern with the newspaper)

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