Iraq crisis: Airlines stare at 4% hike in fuel bills

With fewer passengers airlines bracing for a rise in operating costs due to a spike in crude prices

Traditionally, the second quarter of a financial fiscal is a weak season for airlines, as schools and colleges reopen and travel demand falls. This time, along with fewer passengers, airlines are also bracing for a rise in operating costs due to an increase in crude oil prices and higher aeronautical tariff at the Bangalore airport.

“We are anticipating a rise of about four per cent in ATF (aviation turbine fuel) prices and this will increase our expenses,” said a senior executive of a private airline. ATF costs account for 40-50 per cent of airlines’ overall expenses.

Last financial year, airlines consumed about 5.5 million tonnes of ATF, with a bulk of sales taking place at the airports in Delhi, Mumbai, Bangalore, Chennai and Hyderabad. For 2013-14, Jet Airways’ fuel bill rose 2.6 per cent compared to 2012-13, while SpiceJet’s fuel expenses jumped 30 per cent during the same period, hitting its profitability. Data on fuel expenses of other airlines weren’t available.

Through the past few months, ATF prices in India have softened, and the rupee has gained against the dollar. Currently, ATF is sold at Rs 69,747 a kilolitre in Delhi, for domestic operations, about 10 per cent lower than the price in October 2013. The rupee rose from about 62/dollar in the second quarter of 2013-14 to about 60/dollar in the quarter ended March this year.

However, airline executives fear these gains will be lost due to the ongoing crisis in Iraq, which will result in a rise in ATF prices.

An increase in aeronautical tariff at the Bangalore airport is another concern. “The AERA (Airports Economic Regulatory Authority)’s determination for the Bangalore international airport has delivered a double whammy to Indian aviation. International airlines operating to Bangalore are now facing a steep increase in operating costs, with a 145 per cent increase in landing charges and a 105 per cent increase in parking charges,” International Air Transport Association’s regional vice-president, Conrad Clifford, said in a statement.

As airport charges, including landing and parking charges, accounts for 5-10 per cent of domestic airlines’ operating costs a rise in rates in the Bangalore airport will hit airlines hard.

Expensive journey

• Jet Airways’ fuel bill increased 2.6% to Rs 7,175 crore in FY14 from Rs 6,920 crore in FY13
• SpiceJet’s fuel bill rose 30% to Rs 1,053 crore in FY14 from to Rs 8,081 crore in FY13
• Last financial year, airlines consumed about 5.5 million tonnes of ATF, with a bulk of sales taking place at the airports in Delhi, Mumbai, Bangalore and Chennai