Experts suggest that airfares may increase as crude oil prices surge.

Aviation experts are deliberating on the prospects of leading airlines in the country against the backdrop of concerns about supply-side constraints and the escalating prices of crude oil.

Jagannarayan Padmanabhan, Senior Director and Global Head of Transport, Mobility, and Logistics Consulting at CRISIL Market Intelligence, and Mayur Milak, Senior Research Analyst at Asian Markets Securities, are of the opinion that India's leading airlines might consider raising airfares to mitigate the effects of increasing crude oil prices. Crude oil typically accounts for approximately 40-45% of an airline's total costs.

Despite this significant cost component, both experts do not foresee a substantial negative impact on the profit margins of aviation companies due to the rising crude oil prices.

Milak highlighted the disciplined approach adopted by airlines in the Indian aviation sector, particularly after the COVID-19 pandemic. Despite the challenges faced, including fluctuations in crude oil prices, there has been a noticeable absence of intense airfare wars. This restraint has allowed airlines to generate healthy profits.

Padmanabhan echoed this sentiment, emphasizing that most players in the industry have robust profit margins, providing them with the capability to absorb the impact of rising costs. He further highlighted that the single largest player in the market maintains a healthy margin of around 24%.

Looking ahead, Padmanabhan anticipates a growth of 12-15% in India's domestic passenger air traffic during the period of April-March 2024-25 (FY25), compared to a 13% growth recorded last year.

Padmanabhan shared insights during a conversation with CNBC-TV18, indicating that for fiscal year 2025, domestic passenger traffic in India is projected to increase by approximately 12 to 15%. He attributed this growth to the alleviation of supply issues and the anticipated introduction of additional capacity into the aviation system later in the year.

Padmanabhan anticipates a growth of approximately 8-12% year-on-year in domestic passenger traffic and around 10-12% in international traffic for the upcoming summer schedule.

Padmanabhan highlighted positive travel sentiments across various segments, including leisure, MICE (Meetings, Incentives, Conferences, and Exhibitions), and business travel. This indicates a broad-based recovery and growing confidence in travel across different demographics and purposes.

Source: cnbctv18

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