Oil Price Impact: SpiceJet Chairman Ajay Singh has stated that the current prices of crude oil, which are around USD 90 per barrel, are unsustainable for carriers, thereby hinting at a possible increase in prices and curtailment in growth plans.
The increase in fuel prices, caused by the Middle Eastern crisis, is affecting Asian carriers, with some carriers even planning to ground their aircraft. Experts have indicated that the coming months are not going to be easy for both carriers and travellers.
Singh further cautioned that airlines would find it difficult to absorb the impact of high oil prices and that passengers may soon feel the effects through higher ticket prices.
“Oil prices even at USD 90 are unsustainable,” Singh said, cautioning that the financial strain on airlines could ripple across the aviation sector.
He also pointed out that airfares are not likely to remain constant while fuel prices are rising. “Airfares are unlikely to remain stable,” Ajay Singh stated, emphasising the fact that the airlines are already under pressure because fuel forms a substantial part of the costs incurred during operations.
Airlines cannot totally absorb the impact of fuel price hikes, Ajay Singh explained. “Airlines are not in a position to absorb all the costs,” he said, pointing out that a part of this would be passed on to airline passengers.
He also cautioned that the expansion plans of Indian airlines could be affected if the situation persists. “Growth plans of Indian carriers may be affected,” Ajay Singh remarked.
Rising fuel costs challenge airlines across Asia
The warning by Ajay Singh is coming at a time when airlines in Asia are being challenged by the surging fuel costs due to the conflict in the Middle East.
According to a Bloomberg report dated March 9, airlines in Asia are raising fares and drawing up contingency plans, including grounding planes, as the conflict threatens to spark the greatest oil price shock since the 1970s.
Indian airlines have raised long-haul fares by around 15 per cent and are considering further increases, Bloomberg reported from sources. The airlines in Asia are being challenged more than their European or US rivals because they are less well-hedged against oil price volatility.
June Goh, senior oil market analyst at Sparta Commodities, told Bloomberg that the current surge has already triggered alarm across the aviation industry.
“Panic buttons have been set off everywhere,” Goh said, adding that airlines with weak fuel hedging programmes are especially vulnerable if they sold tickets earlier at much lower price assumptions.
