Praveena Sharma 

Bangalore: Even as airlines take refuge in fuel surcharge to protect their bottomlines from getting affected by rising aviation turbine fuel (ATF) prices, the gap between their revenue and operational cost is only widening.

This, carriers say, will sooner or later force them to raise their basic fare too.

A senior executive of a budget airline said with every hike in fuel surcharge, the basic fare has taken a plunge.

And now, airlines feel that they cannot take any more hits on the basic fare and they would have to upwardly revise it to “stay in the game.”

“Over the last few quarters, our revenues have grown hardly 10%, while the overall operational cost has gone up by 20-25%. In this (operational cost), just the fuel cost has shot up by 45%. And the chasm between revenue and operational cost is only widening. And therefore, there is an urgent need to increase the basic fare too, if we have to survive,” the executive voiced his concern.

Vikram Malhotra, marketing head of Kingfisher Airline, concurs. “Airlines will not unprofitably absorb the cost. Today, the incident of fuel cost is so high that the buffer (between revenue and cost) does not exist. So airlines can consider basic fare revision based on the market dynamics.”

On Wednesday, carriers reacted to spike in ATF prices by increasing fuel surcharge by Rs 150 on short haul routes (less than 750 km) and by Rs 350 on the long haul route (more than 750 km).

With this hike, the fuel levy per passenger has moved up to Rs 1,950 (on short haul sectors) and Rs 2350 (on long haul sectors).

However, this fuel charge increase has eroded the basic fare component in an airline ticket. Such erosion of basic fare has now started worrying airlines.

“Earlier, on an airline ticket of Rs 3000-3,200, our basic fare was easily Rs 2,000 and levies were Rs 800-1,000. Rising fuel surcharge has reversed that ratio. The component of levies has shot up, while that of basic fare has dipped,” said the executive.

Even though Jet Airways is absorbing the impact of jet fuel rise, it is not immune to fallouts of falling basic fares.

“Given a choice, airlines would want to increase the basic fares but it has to be done in a way that it does not affect the demand growth. They will have to bite the bullet (take the impact of fuel price rise on basic fares) for now,” said K G Vishwanath, Jet Airways senior general manager - MIS & investor relations.

Airlines are today faced with a Catch-22 situation - if they increase basic fares, demand growth will decline and if they leave them untouched, their profits get hit. The only good thing going for the airlines is that the capacity growth in the industry has slowed over last one year. Vishwanath says capacity induction has come down to less than 10% against a 40-45% last year. “There is a realisation amongst airlines that indiscriminate capacity addition will only kill them. We have seen airlines deferring aircraft delivery, replacing old planes with new one and some even stopped aircraft induction,” said Vishwanath.

Source : DNAIndia