Air travel between India and Middle East to cost more as Indian carriers plan steep hike in airfares

Sinking rupee value is also adding to the Indian carriers’ operating costs as many of their expenses, including aircraft least rentals, payments to foreign airport operators and expat pilots, are incurred in dollars or are dollar-linked.

Indian oil marketing companies increased ATF prices by 16.3 percent on Thursday – 10th straight increase in 2022, taking the total increase in aviation fuel in India to a whopping 120 percent since June 2021.

ATF prices stood at $1810 per kilo litre in India after the latest round of price hike.

“The sharp increase in jet fuel prices and the depreciation of the rupee have left domestic [Indian] airlines with little choice but to immediately raise fares. We believe that a minimum 10-15 percent increase in fares is required to ensure that cost of operations is better sustained,” Ajay Singh, chairman and managing director of Indian budget airline SpiceJet, said.

While the SpiceJet statement did not specify whether the proposed hike in airfares will be applicable across sectors, an airline official indicated it could be applicable for the Gulf and other international routes also.

India’s largest airline by market share Indigo said given that the airline industry is highly competitive, any proportionate rise in air fares with every rise in ATF prices was not always possible.

“Given the constant increases in crude oil prices and depreciation in the rupee, we believe that the situation is unfavourably impacting the aviation sector as it constitutes almost half of any airline’s operational costs,” an official spokesperson of Indigo said.

Officials with Vistara and other Indian carriers flying to the UAE declined to comment on their plans for a fare hike. Industry sources, however, said most of the Indian airlines are expected to follow suit on the fare increase.

Aviation sector experts, however, said increasing airfares for flights to the Middle East or any international routes can be tricky for Indian carriers as they will have to benchmark the fares to that of competing airlines flying in these routes.

They also said further firming up of airfares could impact demand for air travel, including for international travel.

“With rise in air fares, demand is likely to get impacted as consumers tend to avoid or reduce discretionary travel,” Kinjal Shah, aviation sector analyst and vice president with rating agency ICRA, told Arabian Business.

One way economy class airfare from Mumbai to Dubai was in the range of $153 – $218 for travelling on June 19.

While Indian carriers charged about $153, that by Emirates was at $218. Etihad Airways also charged about $218 for a one-way Mumbai-Abu Dhabi economy class ticket for travel on June 19.

Airline ticket booking firms said the wide gap in airfares between leading UAE carriers and Indian airlines meant that there is enough elbow room for Indian carriers to increase fares on the Gulf routes.

“Besides, there is still good demand for air travel between India and Dubai and also onward from Dubai to destinations in the West because of holiday travel.

Hence, an increase in airfares on the Gulf routes may not have any immediate impact on demand,” Amit Udani, executive director at Mumbai-based Fly Aerolink Travel, told Arabian Business.

Shah said ATF accounts for about 30-40 percent of the total operational cost of airlines.

“The continued increase in ATF prices and depreciation of the Rupee will further weigh on the margins and profitability metrics of the airlines, which are already reeling under pressure given that passenger traffic is yet to reach pre-Covid levels,” she said.