How a 15% Airfare Hike Will Affect Air Travel, Tourism and Hospitality

Are you planning to go on vacation? Then you may have to shell out more out of pocket. Or are you ready for a business trip? The duration of your stay could then be shorter.

Why? You ask. As most of us are too restless to stay home after an extended travel restriction during the pandemic.

Here’s why. SpiceJet boss Ajay Singh warned of an increase in airfares on Thursday as jet fuel prices rose nearly 16%. Prices for Aviation Turbine Fuel, or ATF for short, have been raised to Rs 141,232.87 per kiloliter in Delhi. Why are we telling you this specific number? Because it is an absolute record.

On top of that, the weakening of the Rupee has doubled the challenge for airlines as major cost items such as fuel, maintenance, lease rentals and overhaul costs are charged in US dollars. ATF prices represent 40% of an airline’s costs and these have increased by nearly 55% since January 1.

Ajay Singh said domestic airlines had no choice but to raise fares immediately and a minimum increase of 10-15% was needed.

But there is obviously a catch. Airlines fear that any increase in fares will lead to fewer passengers. With the previous two rounds of fare increases, passenger numbers have already fallen from 407,975 travelers on April 17 to 339,175 on June 14.

The impact is felt. IndiGo, the market leader, posted a loss of Rs 1,681 crore in Q4FY22 as it was hit hard due to rising jet fuel prices and rising exchange rate.

The fates of the airline, travel and tourism, and hospitality industries are intertwined. So how will the upcoming price hike affect them?

Gaurav Patwari, Vice President – Air, at Cleartrip said Trade standard that there was not much impact in the last 2 months of the summer holiday season. But, the impact was greater now that bookings were slowing down, he said.

Meanwhile, bespoke luxury travel is back in full force and companies catering to the niche segment are seeing demand above pre-Covid levels.

Demand is focused on exotic destinations like the Arctic and Antarctica, as well as cruises and road trips to Lahaul, the Spiti Valley and Ladakh. Another interesting format is road trips to foreign countries like Turkey or journeys that cover routes in Jordan, Morocco, Oman and Kyrgyzstan. High net worth clients in these cases might not be influenced by price movements.

Apparently, it will be a difficult time for budget travelers. But an increase in airfares may not have a negative effect on the tourism and hospitality sector. However, it is worth asking: could this change if such increases also coincided with an increase in prices in the hospitality sector?

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