IndiGo Yet to Fully Pass on Gains From Cheap Fuel

Amid rising concerns over higher airfares despite a fall in oil prices, no-frills airline IndiGo has acknowledged it is not passing on all the benefits accruing from lower fuel costs to the customers.

The steep fall in international crude oil prices in recent times has provided a boost for airlines as ATF (aviation turbine fuel) costs account for around 40 per cent of a carrier’s total operating costs.

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IndiGo President and whole time Director Aditya Ghosh said the airline continues to use the low-cost fuel opportunity to lower fares and register strong increases in passenger numbers.

However, the full benefits of the fall in fuel prices are not passed on to the customers, he said. “If you look at fourth quarter (January-March 2015-16), then fuel prices came down 29.5 per cent whereas the average fares came down I think above 15.2 per cent.” “So clearly, we are not passing on all of it back to the customers, but of course the lower fuel prices and the lower average fares also has a positive effect on our load factors,” he said, during the conference call after financial results last week. Further, Ghosh said: “We are not driving down fares, there is some amount of competitive pressure from other operators as well.”

While the airline is benefiting from the higher load factors, he said, “We think we will kind of stay with how the market moves.”

Concerns have been expressed in various quarters, including by Parliamentarians that airlines are not passing on benefits from lower ATF costs to the passengers.

Hit by higher expenses, IndiGo’s parent InterGlobe Aviation on Sunday saw its net profit remain flat at Rs 579.31 crore in the quarter ended March.

Notwithstanding nearly 15 per cent fall in fuel costs to Rs 1,023.6 crore, IndiGo witnessed its total expenses in the March quarter jump nearly 12 per cent to Rs 3,409.86 crore. Aviation regulator Directorate General of Civil Aviation has meanwhile asked carriers to provide details on the number of tickets sold in the highest fare bracket and share of revenue earned from this on 20 identified routes.

On May 3, Civil Aviation Minister Ashok Gajapathi Raju told the Lok Sabha his ministry would hold consultations with airlines to explore the possibility of curbing the menace of charging exorbitant airfares during emergency situations.

His assurance came after Lok Sabha members voiced concerns over exorbitant airfares during emergency situations like unprecedented floods in Chennai and Srinagar and the recent Jat agitation.

Reference - http://www.business-standard.com/article/companies/indigo-yet-to-fully-pass-on-gains-from-cheap-fuel-116050800234_1.html