Airfares may rise as fuel costs surge, airlines add surcharge: Equirus Capital

Vijay Agrawal, MD – Lead of Real Estate & Infra at Equirus Capital, said that ongoing geopolitical tensions in West Asia have driven a sharp rise in crude oil prices, raising fresh concerns for the aviation sector. He noted that the surge in aviation turbine fuel (ATF) costs is likely to significantly impact airline profitability and demand trends.

Agrawal said, “Generally, airlines have a 30 to 40% as their fuel cost. Now it has become like 70 to 80% and they can't sustain so they have started charging a fuel surcharge.” This, in turn, will impact passenger traffic as well as cargo traffic.

The impact of rising fuel prices is yet to fully reflect in domestic airfares. Agrawal pointed out that India has not seen significant price hikes so far, but this could change soon. “You will see more surcharges coming,” he said, indicating that airlines may raise fares after upcoming price revisions.

Globally, airlines have already started adjusting capacity and focusing on maintaining higher occupancy levels rather than expanding routes. This could affect overall volumes and revenue growth in the near term.

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Despite global pressures, the Indian aviation sector could see some relief due to government intervention. Measures such as excise duty cuts and directives to oil marketing companies to absorb part of the cost may limit the immediate impact on consumers.

However, structural issues like varying state-level VAT on ATF continue to create pricing disparities across cities. Addressing these could help reduce cost pressures on airlines and improve sector stability over time.

On the policy front, the government’s regional connectivity push through schemes like UDAN continues to support long-term growth. The focus on viability gap funding (VGF) and infrastructure development, including airports and airstrips, is expected to boost connectivity and tourism.

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