Up, up and away
With international oil prices surging to record levels of $120 a barrel, Indian oil companies have decided to hike the price of aviation turbine or jet fuel by 10 per cent. Airfares thus will zoom as a summer kicks in and families plan a quick getaway to cooler climes. Thanks to the higher jet fuel costs, flying now is costlier by Rs 1,000 per ticket for full service carriers. But that is not all. Domestic airlines have also announced an increase in surcharges — that track fuel prices — by 17.7 per cent. These escalations come on top of a 14 per cent rise in jet fuel prices in March. Obviously, such increases are not good news for passengers. They are not good news for airlines either as they are haemorrhaging with losses of $1 billion this fiscal.
Thanks to steeply rising ticket prices, passenger growth has been slowing down: the number of domestic passengers increased by only 11.1 per cent during the March quarter this year when compared to a year ago. For a sense of perspective, this year-on-year number was as high as 45 per cent in early 2007. There are no prizes for guessing that the latest round of hikes will further squeeze domestic travel and worsen the financial health of domestic carriers. With no signs that the Centre and state governments plan to reduce duties on jet fuel, reports indicate that most airlines plan to go slow on their fleet acquisition, with some adopting a more flexible fleet induction plan in line with demand.
The point is that the woes of the airlines will not end if jet fuel costs keep rising while the rest of the economy is insulated from rising global oil prices. The state-run oil companies have no choice but to keep jacking them up as they are taking a huge hit — Indian Oil Corporation’s losses are as much as Rs 3.2 billion a day — due to the insulation of retail prices of petrol, diesel, LPG and kerosene from global oil prices. A more rational oil-pricing mechanism is needed that allows a greater degree of pass-through to domestic prices instead of letting jet fuel bear the brunt of adjustment and letting airlines bleed.