Aviation fuel prices hiked by 18%

Aircraft fuel prices were hiked for the sixth time this year on Wednesday, posing a serious threat to the nascent recovery seen by Indian airlines recently.

Aviation turbine fuel (ATF) prices witnessed an 18% jump, taking it to an all-time high of ₹110,666.29 per kilolitre in Delhi, according to a notification by government-owned oil retailers on Tuesday.

Jet fuel price in Mumbai jumped to ₹109,119.83 per kl from ₹91,998.08 per kl. In Kolkata, it soared to ₹114,979.70 per kl. ATF is priced at ₹114,133.73 per kl in Chennai.

This comes at a time when Brent crude – the international benchmark - continued to soar above $100 a barrel amid the ongoing Russia-Ukraine war.

On March 1, aviation fuel prices were increased by 3.3%. Last month, ATF prices were raised by 8.5% on the day of the Union Budget 2022-23 and then again on February 17 by 5.2%.

Fuel prices are changed twice every month based on the average price of the international benchmark in the preceding fortnight.

Earlier this month, the government announced the resumption of scheduled commercial international flights from March 27, taking into account the increased vaccination coverage across the world.

The resumption of regular international flights comes two years after the Directorate General of Civil Aviation (DGCA) suspended such operations with effect from March 23, 2022 due to the onset of the Covid-19 pandemic.

India’s domestic passenger traffic jumped around 19% sequentially to an estimated 76 lakh in February compared with 64 lakh in January 2022, according to ICRA.

The rating agency continues to maintain a “negative” outlook on the Indian aviation industry. “The outlook reflects ICRA’s view that the financial performance of Indian airlines is likely to remain weak as recovery in domestic passenger traffic to pre-Covid levels is likely by FY2024, also the sharp rise in ATF prices, will continue to pose a major threat to the profitability of the airlines in the near term.”

The rating agency cautioned that low capacity utilisation of the aircraft fleet, combined with a sharp increase in ATF prices will continue to weigh on the financial performance of Indian carriers in FY2022. The credit profile of most Indian carriers continues to be characterised by the weak liquidity position, it said.

Brent crude prices skyrocketed to a 14-year high of over $130 a barrel earlier this month as the US announced a ban on oil imports from Russia.

In India, state-run oil marketing companies are yet to hike retail prices of petrol and diesel.

The rising crude prices are expected to severely impact India's foreign exchange outgo, fiscal deficit and inflation numbers as the country imports around 85% of its annual oil requirement.