Wednesday, November 14, 2018

Air travel may cost more if crude oil prices rise

Airlines may increase ticket prices to make up for margins if ATF prices increase; says CARE report

  • Air travel may cost more if crude oil prices rise

By Suyash Desai

Air travellers may have to pay more for their travel as airlines grapple with higher ATF prices. With prices of crude oil firming up, an ATF price rise is inevitable. A 20 per cent rise in crude oil prices from the current $65-70 per barrel could bring down operating margins to 4-6 per cent. Airlines may have to pass on the increased fuel cost to consumers, which could affect demand, according to a report by CARE Ratings. 

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The report says that the combined passenger traffic is expected to double in the next five years with a growth rate of 14-15 per cent annually. It adds that the ratio of domestic vis-à-vis international passengers is expected to narrow further as airlines offer tickets priced at par with train tickets between select destinations. Two new major airports at Navi Mumbai (Mumbai region) and Noida (NCR) are expected to add sizeable capacity.

Domestic traffic growth is expected to emanate from the smaller and UDAN cities which were untapped and unserved till now, says the report. Addition of up to 100 million passenger capacity is expected at UDAN scheme airports over the next 3-5 years.

With the expected rise in capacity, airlines expect to add 500-600 aircraft over the next 5-7 years to meet the increased demand. One-third of this fleet addition would replace retired aircraft. An additional 4500-5000 pilots and 30,000-35,000 cabin crew, engineers, and support staff would be required to operate the additional aircraft, the report adds.