Airfares Must Rise 10-15% Minimum, Says SpiceJet; Shares Fall

The shares of budget carrier SpiceJet fell over 3.5 per cent on Thursday after the company’s managing director said the hike in aviation turbine fuel price was “not sustainable” and airfares need to be raised by a minimum of 10-15 per cent.

On the BSE, SpiceJet stock fell 3.64 per cent to last trade at ₹ 42.40, when the broader market and global risk assets rallied to resurge from deep sell-offs in previous sessions.

Ajay Singh, Chairman and Managing Director at SpiceJet, said on Thursday, the sharp increase in aviation turbine fuel (ATF) prices and the depreciation of the rupee have left the domestic airlines with no choice but to immediately raise airfares.

Jet fuel prices, which make up for almost 40 percent of the running cost of an airline, had risen to new highs this year after nine successive hikes.

A minimum 10-15 per cent increase in air fares is required to ensure that cost of operations are better sustained. SpiceJet has in the last few months tried to absorb as much burden of this fuel price rise, which constitutes more than 50 per cent of our operational cost, as we could, said Mr Singh in a statement.

“ATF prices have increased by more than 120 per cent since June 2021. This massive increase is not sustainable and governments, central and state, need to take urgent action to reduce taxes on ATF that are amongst the highest in the world,” he said.

“The weakening of the Indian rupee against the US dollar further significantly impacts airlines as our substantial cost is either dollar denominated or pegged to the dollar,” added SpiceJet’s CMD.

In April this year, ATF prices were raised by 2 per cent to Rs 1,12,924.83 per kilolitre. Later, on May 1, jet fuel prices had gone up by 3.2 per cent, followed by the May 16 hike.

But earlier this month, ATF prices were reduced by state-owned oil marketing companies by Rs 1,564 per kilolitre, to bring jet fuel cost down to Rs 1,21,475 per kilolitre from Rs 1,23,039 per kilolitre.