Pandemic may come and go, but it’s the crude oil woe, which is back and haunting India’s already gasping airlines. If numbers are something to go by, rising crude prices may force airlines to keep costs under check, while they try and fill as many seats, the regulations allow them to fill.
At aviationavi, we see the previous trend of crude oil prices staying at $70 levels as OPEC+ countries try and make the most of commodity super-cycle and the windfall gain in an otherwise tepid economic scenario.
Given India’s high taxation, which hurts all kind of fossil fuel users and consumers alike. But the worst hit is the aviation sector, which spends over 30% of its revenue on ATF.
A high ATF in other aviation markets, the airlines could have offset some cost by passing it on to the customers. But in a competitive market like India, ticket prices have remained soft ever since the Low Cost Model emerged. But given the current circumstances, heightened sensitivity around any type of travel, and the additional costs which come with it following SOPs laid down by Government, means a lower revenue and a much higher cost.
The two possible outcome of the ongoing low passenger traffic and the onslaught of high fuel price,
- Sharper crew and fleet control, followed by reducing bench strength and increasing leave without pay for employees and crew.
- Possible reduction in network or stopping operations on low traffic routes. With the rural demand too getting hit in the second wave, the chances are, the lower tier cities too will witness restricted passenger movement.
Possible good news to conclude and some respite- June quarter may well turnout to be the new bottom for airlines, both financially and operationally.
- WTI – west texas intermediate (is a light, sweet crude oil that serves as one of the main global oil benchmarks)
- Mum – Mumbai (INDIA)
- OPEC – organization of petrol exporting companies
- Q-end – quarter end
- RASK – revenue per available seat kilometer
- CASK – cost per available seat kilometer
- ATF – aviation turbine fuel
- SOPs – standard operating procedures
By – Ashish K Nainan (Aviation Analyst)