Air fare set to rise again next month

NEW DELHI: If you feel air fares have hit the roof, think again. Jet Airways, the country's largest private airline, has made it clear that the recent five to six hikes have still not brought the industry closer to the break even point. An additional 15% increase in fares, coupled with several cost-cutting measures by both airlines and the government, are required to help airlines fly out of the red. While cost cutting steps are being taken care of, fares can go up again next month when the peak travel season begins.

"Even after the latest 10% hike, we are far from being out of the woods. Another 15% hike is needed along with structural reforms. The latter include cost-cutting by rationalizing flights; tax reforms on jet fuel pricing; temporary relief in landing, parking and navigation charges and a freeze on any increase in airport charges, especially at new private airports ," Jet Airways CEO Wolfgang Prock-Schauer said.

Airlines also want deferment of user development fee (UDF) at Bangalore and Hyderabad airports. But this is unlikely to happen as civil aviation minister Praful Patel has made it clear that UDF is an essential part of airport developers' revenue model and will have to be levied. And UDF at these airports can take place this month itself, adding to the travel cost of passengers.

Jet Air has drawn up a $50-million cost reduction plan for 2008-09 . This will be achieved by steps like reducing distribution costs and renegotiating all agreements with vendors like aircraft leasors, hotels and maintenance firms. For Jet alone, said Prock-Schauer , rise in jet fuel prices since April have created an additional burden of $20 million per month. Congestion at big airports and hovering before landing or waiting before take-off , are also adding to fuel cost.

Passengers are now finding that air travel has once again become expensive. before 2003, a Delhi-Mumbai economy class ticket used to cost over Rs 9,000. Introduction of low-cost carriers (LCCs) had brought this fare to below Rs 1,000. Today, the same LCCs are selling the tickets for this route at Rs 5,325, while full service carriers are charging Rs 6,775. Another 15% hike will now bring the fares closer to the pre-2003 level and possibly clip the wings of the middle class Indians, who have started flying like never before.

The industry's overestimation of fliers had led to an overcapacity, and a loss of Rs 4,000 crore in 2007-08 , which may rise to Rs 10,000 crore in fiscal 2008-09 .