Crude shock: Jet Airways says fare hike is inevitable

Crude shock: Jet Airways says fare hike is inevitable

With oil price ruling above the USD 70 per barrel mark, the Indian aviation sector is feeling the pinch. So, will the rise in crude oil prices force Jet Airways to hike prices soon?

aroj Datta, Executive Director, Jet Airways, said sooner or later the increase in fuel prices will have to be passed on either as a hike in fares or as a fuel surcharge. “The rise in crude it is leading to increases in ATF prices. Every ATF price increase is reflected in a price increase by Indian oil companies and has an adverse impact.”

He wants the Finance Minister to reduce taxes and give ATF declared goods status.

Also see: Crude may go up to $67.3/bbl: Safetrade Advisors

Here is a verbatim transcript of the exclusive interview with Saroj Datta on CNBC-TV18. Also see the accompanying video.

Q: What about crude oil prices that are hovering around that USD 70 per barrel mark? What kind of impact is this having on the cost structures of your airlines and the sector in general?

A: Quite obviously it is leading to increases in ATF prices. Every ATF price increase is reflected in a price increase by Indian oil companies and has an adverse impact. To what extent, I won’t be able to quantify it and tell you right now, but quite obviously sooner or later it will have to be reflected in some form or the other on fares or fuel surcharge or whatever it is. Otherwise, I don’t see how airlines – I am talking about carriers, operators in India who are already making very substantial losses ‑ will be able to continue to even move towards breakeven if we don’t do anything with the fares and the fuel surcharge.

Q: As you have pointed out, ATF prices are rising and the government has clearly pointed out that don’t expect any relief from us. In that sort of a scenario, are you now saying that a fare hike is really inevitable and consumers must brace themselves?

A: My personal opinion is that it is almost inevitable. I don’t know precisely at what level fuel surcharges are today relative to what the fare levels were at that time. But as a matter of principle, logically it must reflect itself sooner or later into some form of increase. I am sure the airlines in India have been paying attention to this.

Q: One of the pending demands for this sector has been declared goods status for ATF. Do you expect that to materialise this time around?

A: We hope it will be heard. The industry has been making representations to the government about the requirement or the need to look at it and to implement it for several years now. The important point is that it has become an industry with very low yields and high import costs. In India, input cost are substantially higher than elsewhere in the world with fuel taxes being 25-26%. You have read what the Director General of IATA had to say recently about the airport and the user charges that are being levied. All of that is making it even more difficult for the airlines to breakeven. Unless the aviation industry is a self-sustaining industry, there is no way it can continue to survive. How long will it survive when it is making losses?

Some of us will have to go out of business, some will survive may be because of government support or because of enough capital available. But it is a very difficult situation that we are in. We sincerely hope that the new government and the Finance Minister will take steps to reduce taxes, make it a declared status, and give us some relief.

Q: The picture is certainly looking bleak for the aviation sector but all indications at this point suggest that the declared goods status will continue to be a long standing demand. It doesn’t seem to be on the priority as far as the government is concerned at least at this point because the states refused to play ball. But the other issue that is being discussed right now is the change as far as the FDI regulation are concerned for the sector. I know that Jet really hasn’t been in favour of opening up the sectoral cap further. Do you continue to maintain that stand?

A: We don’t see what benefit the relaxation of the FDI policy at this point will bring to the industry. The foreign airlines themselves are incurring huge losses and we don’t see why they should be interested in investing in companies which are losing money in India. The primary interest for any foreign airline to invest in Indian carriers would be nearly to get access to the Indian market more effectively than they are able to do merely through marketing arrangements and whether it will bring more capital in. So, whether it will enable the industry to do better is a very difficult question.

We don’t see an immediate need to change the policy. Let the industry do well. When the Indian carriers can negotiate on strong terms with foreign airlines in the market then may be it can be considered. But it is too early to talk of it really.