National, May 18, 2021: Seasoned market analyst Deepak Talwar talks about the already struggling Airline Sector which now faces a double whammy due to the price rise in Jet fuel.
As of the end of the last month, April 2021, Jet Fuel’s price was hiked by 6.7 percent. This reversed the price cuts that were ordered at the beginning of April’21. The price of aviation turbine fuel (ATF) was increased by ₹3,885/kilolitre or 6.7 percent to ₹61,690/Kilolitre in Delhi. Rates will vary from state to state depending on local taxes. Prices were initially cut by 3 percent on April 1 and then again by 1 percent on April 16.
Along with the long-term effects of the pandemic, both personal and occupational, several companies are bearing the brunt of airfreight shipments due to the rise in the price of jet fuel this year. There can be a possible reduction in the limited capacity if passenger airlines decide to rush cargo-only flights on a temporary basis.
Market veteran Deepak Talwar says higher prices for fuel which are about a quarter of the operating costs, might make it more turbulent for the airlines to go back to cash-positive operations. The industry already incurred huge losses last year and even now the circumstances remain the same. People avoided traveling because of the Covid-19 virus and this led to many airlines being shut down while others borrowed for sustenance and survival.
It is to be noted that 35-50% of the cost of running an airline is the cost of Aviation turbine fuel (ATF) in India. This further supports the fact that along with the implications of the pandemic, airlines will have to deal with more pressure and make even more desperate efforts in order to survive. The seasoned market analyst Deepak Talwar uncovers the plight of the aviation industry. He highlights the fact that Indian airlines give in 40-50% more on ATF prices as compared to others across the globe. With International operations also at a halt, the airlines can’t afford to buy cheaper ATF even from abroad.
“The rising costs of the fuel and other necessary variables along with the uncertainty of the future of travel trade across the globe, the whole scenario will put off the airlines even more from the idea of expanding capacity majorly on the routes which have low demand” adds Deepak Talwar.
The Covid-19 virus has had a significant amount of influence on decision making since its onset in 2020, whether it is an organization, familial matters, or monetary details everything is suffering. Where the aviation industry is concerned there is a need for the airlines to adjust their budgets and come up with technologies that will lead to lower fuel consumption.
Deepak Talwar believes that the best bet for the airlines to hedge the oil is by purchasing or selling the expected future monetary value of oil through a range of derivatives, it will curb the rise in price.
Deepak Talwar also suggests some ways to successfully deal with the fluctuating oil prices: Purchase of Current Oil Contracts to hedge oil is done when airlines expect a rise in the price in the future. Another way, Purchasing Call options provide the buyer the right to buy a stock or a commodity at a specific price before a specific date.
“The pandemic isn’t going away anytime soon, and by looking at the current situation of the aviation industry in our country, passengers might have to bear the brunt of the increased ATF prices as airlines will be left with no other option than passing on the inconvenience” concluded the aviation analyst Deepak Talwar.