Aviation turbine fuel (ATF) has become more expensive for domestic airlines for the second month in a row, with prices rising by 5.46%, or Rs 6.28 per litre. According to sources at Indian Oil Corporation Ltd (IOCL), the latest revision has taken the price of jet fuel from Rs 115 per litre to Rs 121.28 per litre.
The increase comes after ATF prices were raised by Rs 5 per litre on August 1. At that time, the price had moved up from Rs 110 to Rs 115 per litre. The previous month had brought some relief to airlines, with ATF prices being cut by Rs 5 per litre in July.
Why the hike matters for airlines
Fuel is among the biggest expenses for airlines operating in India. ATF typically accounts for about 35% to 40% of an airline's overall operating costs. A sustained rise in jet fuel prices can therefore put additional pressure on the finances of domestic carriers.
The impact on passengers, however, is not necessarily immediate or equal to the increase in fuel costs. Airlines consider several factors while setting ticket prices, including demand, competition, available capacity on a route and booking patterns. As a result, a rise in ATF prices does not automatically translate into a similar increase in airfares.
Global crude prices add to pressure
The latest ATF revision comes as international crude oil prices have been moving higher amid renewed tensions in the Middle East. Oil prices rose on Tuesday after fighting between the US and Iran resumed, reviving concerns about possible disruptions to supplies from the region.
Brent crude futures gained 56 cents, or 0.6%, to $91.05 a barrel at 0044 GMT. US West Texas Intermediate crude rose 83 cents, or 1%, to $86.59.
In the previous session, Brent ended 2.7% higher after briefly reaching its strongest level since August 25. WTI gained 2.8% and touched its highest level since August 21.
Crude prices had remained volatile throughout August as markets responded to efforts to halt the conflict and US measures designed to increase economic pressure on Iran.