Airlines are betting on current oil price trends to keep their fares low. Several carriers, including many low-cost airlines have decided to keep airfare at the current levels in September as well as the coming months provided oil prices remain stable.
International crude prices on Friday closed at $118 a barrel — substantially down from its peak of $147 a barrel two months ago.
Though the airline industry expects a 15 per cent reduction in air turbine fuel (ATF) prices, public sector oil companies are expected to bring prices down by 7 to 8 per cent because of a fast-appreciating dollar in August.
The new ATF prices for September will be announced on August 31.
Low occupancy is another reason that has prompted airlines to take this decision. With nearly 40 per cent of the seats flying empty due to constant rise in airfare, carriers are planning to win back a large chunk of leisure travellers who have gone to the railways.
“We don’t have any plans to increase fares now,” said Samyuktha Sridharan, chief commercial officer, SpiceJet. “If oil prices remain range bound, the existing fares are sufficient to take care of the expenses. At the moment there is no need to hike fare as a passenger pays nearly Rs 4 a kilometre.”
Similarly, the biggest low cost carrier IndiGo is also comfortable with the existing fares. “No fare hikes are planned,” said Bruce Ashby, president & CEO, IndiGo Airlines.
But some airlines mainly full service carriers are planning to increase fares by 20 per cent in the coming months.
Full service carriers are increasing fares because many of their passengers are corporate travellers and are not as price sensitive as leisure travellers.
“Airlines must charge fares that passengers can afford otherwise the load factor reduces,” said Mohan Kumar, former CFO, Air Deccan. “Worldwide domestic fares are cheaper to prompt people to fly and it should be the same in India.”