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Airlines are expected to increase fares after Wednesday's jet fuel duty spike. Here is why they might not


The government on Wednesday announced increase in the price of customs duty of 19 items to control the widerning Current Account Deficit. The 19 intems included jet fuel with the govt imposing 5 percent duty on it. The move is expected to make air travel expensive but will it? Here's what may happen...

Airlines are expected to increase fares after Wednesday's jet fuel duty spike. Here is why they might not
On Wednesday, the government imposed a basic customs duty of 5 percent on jet fuel, or ATF, which effectively raised the prices of the fuel that oil refiners supply to airlines by Rs 2,000 a kilolitre from Thursday. The move is expected to make air travel more expensive as airlines could potentially increase fares. But will air travel get costlier?
On the face of it, it appears it will. A 5 percent increase in jet fuel prices is expected to bump up the overall cost of an airline by 2 percent, according to Sharad Dhall, COO (B2C), 
Airlines in India have been struggling of late because of the steady spike in crude oil prices and the fierce competition that has prevented them from raising fares consistent with an increase in costs. And jet fuel is an important constituent in costs, accounting for between 30-45 percent of the overall costs of an airline.
Yet, airlines are likely to desist from raising fares in a hurry. A senior executive of an airline said fares don’t just move like that. By ‘that’, he was referring to the increase in ATF prices. “Fares are a function of demand and supply and airlines are not a cost-plus business,” he said, asking not to be named.
Dhall echoed a similar sentiment. He said the three months from October — the December quarter — are typically peak travel season and gives room to airlines to absorb the cost uptick. Airfares during these months are usually high and give airline higher yields than the September quarter, he said.
Look at it this way: people will look to travel in the next three months because of the advent of holidays and festivals; airlines would not want to temper the demand with increased fares.
That is not to say fares will continue to remain subdued. “Today fuel price is higher than 2013-2014 in rupee terms, rest of the 40 percent of dollar denominated costs — maintenance, engine parts etc — are also 20 percent higher, excluding inflation thanks to the rupee value decline, and average airfare is 35 percent lower than it was in 2014,” the airline executive quoted above said. “Something has gotta give. Some airlines will collapse.”
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