ATF prices hiked by 5.46%: Will flight tickets rise?

Domestic airlines face another increase in jet fuel prices. The price of aviation turbine fuel (ATF) was raised by Rs 6.2 per litre on Tuesday, a hike of more than 5%, according to a report by NDTV Profit citing unidentified sources at Indian Oil Corporation Limited. This marks the second consecutive monthly increase in ATF prices, which now stand at Rs 121.2 per litre.

The latest rise follows a hike on August 1, when the rate was increased to Rs 115 per litre from Rs 110. In July, the price had been reduced by Rs 5 per litre.

Why are prices rising?

The increase is linked to rising global crude oil prices, which have been driven up by tensions between the US and Iran. These tensions could disrupt supplies through the Strait of Hormuz, a critical shipping route for oil. Brent crude is currently trading close to $90 per barrel, while West Texas Intermediate (WTI) has crossed $86 per barrel. The war in West Asia has also led to airspace restrictions, further increasing operating costs for airlines.

Impact on airlines and passengers

Aviation turbine fuel accounts for about 40% of domestic airlines' operating expenses, according to reports. Fuel costs constitute 35-40% of the operating expenditure of Indian domestic airlines. The latest increase is likely to add to the financial pressure on carriers, which may pass on the higher costs to passengers through increased airfares.

However, ticket prices also depend on other factors, including passenger demand, competition among airlines, and available network capacity. The extent to which fuel price hikes translate into higher fares remains to be seen.

Recent price trends

This is the second consecutive monthly increase in ATF prices. In July, the rate had been reduced by Rs 5 per litre. On August 1, the price was raised to Rs 115 per litre from Rs 110. The latest hike brings the price to Rs 121.2 per litre.

Broader context: Oil prices and the West Asia conflict

The rise in ATF prices comes against the backdrop of increasing global crude oil prices. Tensions between the US and Iran have raised concerns about potential disruptions to supplies through the Strait of Hormuz, a critical shipping route for oil. Brent crude is now close to $90 per barrel, while West Texas Intermediate (WTI) has crossed $86.

India imports about half of its crude oil needseto, and the conflict in West Asia has pushed up global oil prices. The same conflict has also led to airspace restrictions, adding to operating costs for airlines.

Industry concerns

Earlier this year, on April 26, Air India, IndiGo and SpiceJet told the Union government that the aviation sector was on the verge of "stopping operations" and sought its intervention for immediate and substantial financial support. On May 13, Air India said it would temporarily suspend some services due to airspace restrictions over certain regions and record-high fuel prices.

Impact on LPG prices

The ATF hike was accompanied by increases in the price of commercial liquefied petroleum gas (LPG) cylinders. The price of a 19-kg commercial LPG cylinder was raised by approximately Rs 10, while the rate for free trade 5-kg cylinders was increased by Rs 2.