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Air travel gets costly; airlines hike fuel surcharge
June, 03rd 2008

Jet Airways has hiked fuel surcharge by Rs 150 for up to 750 kilometres and by Rs 250 for more than 750 kilometres. Deccan and Kingfisher have also hiked fuel surcharge by Rs 300 for flights up to 750 km and by Rs 550 for flights beyond 750 km. The fuel surcharge will be effective from Tuesday.

Air travel is all set to get even more expensive. Indian, Deccan and Jet Airways all said that they will have to impose an additional fuel surcharge on all tickets with effect from the first week of June. This increase comes after oil companies hiked ATF prices in line with increasing crude oil prices.

All airlines are gearing up to announce a hike in airfares shortly. A decision on the increase will be taken later.

 Jet Airways has already hiked fuel surcharge on flights up to 750 kilometres by Rs 300. On flights of more than 750 kilometres, fuel surcharge has been hiked by Rs 550. This comes after oil manufacturing companies hiked ATF or jet fuel prices by an average of 18.5%.

City          % Hike      New Price
Delhi        18.5         Rs 69,227/kl
Mumbai    18.6%     Rs 71,759/kl  
Kolkata     18.2%     Rs 76,625/kl
Chennai    19.5%     Rs 75,602/kl

ATF prices have been raised between 18.2% and 19.5% in the four metro cities Delhi, Mumbai, Kolkata and Chennai. This is the fourth hike in ATF prices since February 2007. It's expected that all airlines will soon follow suit announcing price hikes.

Shivani Muthanna of CNBC-TV18 adds:

SpiceJet and Kingfisher will announce their fare hike shortly. Jet, Kingfisher and Spice Jet had hiked base fares by 10% in May 2008 and fuel surcharge was hiked by Rs 150-350. Jet fuel prices were hiked by 52-55% in 2008 and airfares were hiked by 15-18%. Fuel prices now constitute over 50% of airline operating cost.

OMCs hike ATF prices
- Average increase: 18.5%
- Air fares to rise 15- 20%

Indian/Jet Airways Hike
 < 750 kms: Rs 2,250 (up Rs 300)
 > 750 kms: Rs 2,900 (up Rs 550)

With effect from June 3 on all routes

Air Fare hike
3 Tier Fuel Surcharge
 > 1,000 kms - Rs 3,300 - 3,500

Civil Aviation Minister Praful Patel said that while there is no quick-fix solution, he will appraise the Prime Minister and Finance Minister of the severe pinch felt by the sector.

 When we will take these decisions, on whatever interim measures which we can, on one level we will be talking to the PM. I hope the FM is part of that meeting. The Cabinet Secretary and team of Secretaries will also look at some issues. We will also talk to the airlines and all the stakeholders in the business. We will see what best we can do, said Praful Patel.


 Patel said that high jet fuel prices will hurt airline companies. The Minister will meet Prime Minister Manmohan Singh and dicuss the problems faced by the airlines in a weeks time, he said. The government is concerned and unhappy with fuel since it has impacted on bottomlines of the airlines, he added.

 The Airline companies have said that they will rationalise routes and services, to combat ATF or the Aviation Turbine Fuel price. Also the sales tax, excise and customs duty on fuel have a multiplier effect, Patel stated.

 According to CNBC-TV18s Swati Khandelwal, as airlines hike fares, the Civil Aviation Minister is in mission mode. Praful Patel will meet the PM and FM to discuss a bailout package for the aviation industry. Patel's demand for a cut in state sales tax on ATF continues to be ignored.

 Around 24 hours after the oil companies hiked ATF prices, the fourth time in the last 15 months, Civil Aviation Minisiter, Praful Patel is trying to play savior. Patel will meet the PM and the Finance Minister this week to discuss options to help the beleaguered airline industry.

 A possible declared goods status to ATF, cut on state sales tax on ATF are a few solutions. But Patel's longstanding demand of a cut in sales tax continues to be cold-shouldered. A meeting with state finance secretaries on May 30 to discuss a cut in sales tax from 33% to atleast 12.5% was postponed. Now, Patel says, 12.5% will not stem the losses and states must look at sales tax on ATF at 4%.

 Patel is hoping for immediate intervention and has cautioned the government about the health of the sector.

 Airlines have indicated that they may be forced to rationalise their services, especially on short haul distances. Patel will meet industry leaders on June 4 to assess the situation and take possible remedial action.

 Earlier, GR Gopinath, Executive Chairman, Air Deccan, said, "What is worrying is that the minimum surcharge, in my opinion, will increase losses if you have an entry barrier, because you have a lower occupancy as there is an entry barrier. So airlines are now carrying lower payload because you start a price rate at minimum barrier because of the fuel surcharge and a large quantity of seats are going unoccupied."

While Jitendra Bhargav, the spokesperson for Indian, said, "As far as the surcharge is concerned, yes, it is going to go up by Rs 300 for flights upto 750 km, and Rs 550 for flights beyond 750 km. The fuel surcharge is going to be levied from June 3. But the basic fares would remain the same and we do have marketing schemes because we know when the prices shoot up because of the surcharge that's been imposed, and a lot of people find air-travel unaffordable - for this segment of the society or air-travellers, we do have schemes like the spot-fare scheme, where the passenger can buy tickets at a very lucrative fare, upto six hours before the flight's departure."

Ajay Singh, Director, SpiceJet, said the airline plans to announce an increase in fares shortly. "Short-haul flight routes will be impacted the most with the airfare hike. Airlines are considering a containment of capacity and routes." He feels the government needs to get proactive in bringing down taxes and landing charges. He was speaking to CNBC-TV18.

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