While Domestic Carriers Slip On Oil Prices, Contemplate Fare Hike

It seems that domestic carriers might be the first to blink at the rising oil prices. While they officially remain neutral regarding a fare hike, it appears to be imminent. Jet Airways CEO, Peter Luethi, said that the airline will soon decide on whether it will impose a fuel surcharge, increase fares or continue with the existing fares on its domestic flights. "All options are being examined and a decision can be expected in about a month," Luethi said.

The airline may opt for a straight fare hike proportionate to what the others will come out with, although the advantage with a surcharge is that it can be lowered or scrapped as the fuel prices move down. A spokesperson for Air Sahara said, though no decision has yet been taken on raising domestic fares, a decision was expected soon. "A decision on whether or not domestic fares should be hiked could be taken early next week", the spokesperson said.

A fare hike is inevitable and just a matter of time, said John Kuruvilla, Air Deccan's Chief Revenue Officer and Head-Commercial. Soaring jet fuel prices in recent months are forcing budget airlines such as Air Deccan to get set for a re-look into its fares. In the past few days, the global price of oil had touched $70 a barrel before sliding back a bit. This has meant that the average price of aviation turbine fuel (ATF) has gone up by about Rs 1,600 per kilolitre and between the last month and this month. The current average price of ATF is about Rs 36,000 per kilolitre. The Budget airline launched two years age offers prices that are up to 50 per cent lower than the other airlines, especially on long hauls. While passengers will have to bear part of the jet fuel price head-ache, Air

Deccan will keep up its price edge. After all, "We are a low cost airline, and not a low-fare one". Otherwise, simply dropping the fares or not rationalising them would bleed it, he said. In a game where domestic airlines are watching who will blink first, Air Deccan was waiting for the others to make their announcements. "We don't want to be the first one. The fares have to go up and everyone is waiting.

(Even if we do so), ours would still be the lowet in relation to the fares of other airlines", Kuruvilla said. For a low-cost airline, the peaking of aviation turbine fuel price this month to Rs 39,085 per kilolitre (at Kolkata rates) alone accounted for 30-35 per cent of the input costs.

The price spiral had not been healthy, coming at a time when "We have just stimulated the market on the back of very attractive fares," Kuruvilla said. Though international crude prices are down $6 from $70, "We are waiting for a correction and for the prices to stabilise in a few weeks". The hike when announced will be the second this year. In April, the domestic airline industry had announced a 12-per cent hike in fares.