India's largest private carrier Jet Airways has announced a reduction in fuel surcharge on air fares on all domestic routes from December 6. This move is in response to the recent reduction in aviation turbine fuel by the oil marketing companies. Crude oil prices has plunged to $46 a barrel from $147 a barrel in July 2008.
Flag carrier Air India has also reduced fuel surcharge from December 2 on all its domestic routes. Other airlines may follow suit, say industry observers. The move by these carriers is aimed at wooing back passengers whom airlines had lost to other modes of transport on account of higher air fares.
For routes under 750 kms, Jet has reduced the applicable fuel surcharge by Rs 400, to Rs 1,950. Fuel surcharge on these routes previously stood at Rs 2,350. For routes over 750 kms, the carrier has also reduced the applicable fuel surcharge by Rs 400 to Rs 2,700. Fuel surcharge on these routes previously stood at Rs 3,100.
Similarly, Air India has reduced fuel surcharge for all domestic sector flights by Rs 400. The fuel-surcharge is now Rs 2,350 for sectors below 750 kms and Rs 3,100 for sectors over 750 kms. The average reduction in fuel surcharge will be over 14.5%.
The cut-back in fuel-surcharge is a consequence of the reduction in ATF prices from September 2008 onwards, including the reduction announced by oil companies for December 2008. Domestic air travel demand has been sluggish in recent months, and the reduction in fuel surcharge is expected to stimulate domestic air travel market during the winter peak season. Says Raghu Menon, CMD, Air India, "We have decided to bring down the fuel surcharge, now that crude prices have fallen globally, thereby bringing down aviation turbine fuel (ATF). Although crude prices are still volatile, we hope it will stabilise at current levels, so that there is a short to medium term relief in ATF costs." He adds that while the airlines are no doubt going through difficult times, it is necessary for the carrier to react positively to pass on some concession to passengers and generate demand.
However, according to data available with the Air Passenger Association of India (APAI), air travel dipped nearly 30% in the July-September quarter owing to record high air fares on the domestic network. Says an aviation analyst, "Seats are a perishable commodity. Once the doors of the aircraft are shut, unoccupied seats are a waste.With dwindling load factors, airlines are unable to pull in their revenues. Slashing air fares are a smart business proposition for the airlines."