I was just wondering about this a few days back, same goes for the petrol prices… why can’t they be reduced since the crude oil is now cheaper?

Article taken from HT epaper

Oil marketing companies including Indian Oil, Bharat Petroleum and Hindustan Petroleum have slashed aviation turbine fuel (ATF) by 16 per cent, passing on the benefit of lower international crude oil prices to airlines. However, airlines seem reluctant to reduce their fares, and cite heavy losses over past years as the reason.
From Sunday midnight, ATF prices will be slashed by an average of Rs 11,784 per kilolitre (thousand litres) for domestic airlines and by $205 for international airlines.

This is a 16 per cent fall from August prices. On the last day of each month, oil marketing companies announce ATF prices for the next month in accordance with prevailing crude oil price.

In August, oil prices dropped from around $133 to $118 per barrel. “Now airlines must bring down the airfare,” said Anantha Kumar, a frequent flier.

According to GR Gopinath, who had founded budget carrier Air Deccan, such high level fares would deter people from flying.

“Airlines cannot keep the base fare at Rs 2,900,” he told Hindustan Times.

“They must bring down prices to stimulate flying.” But the airlines don’t seem keen on passing the benefit to flyers. “For the time being, we do not want to change our pricing strategy,” said Wolfgang Prock-Schauer, CEO, Jet Airways.

“We want to see the medium-term development of ATF prices before taking the call. Even with this decrease, ATF prices are significantly above what they were six months ago.”.

The country’s national carrier, Air India, is not in a mood to reduce fares either. “We welcome the news,” said Jitendra Bharghava, executive director, Air India. “The downward revision would help reduce losses being incurred by airlines.” However, analysts believe that airlines should cut fares. “Ideally they should,” Ankur Bhatia, executive director, Bird Group, an aviation consultancy firm. “But seeing their cost and losses, it looks difficult that they would reduce fares.” In June, when oil companies increased ATF prices by 5,500 per kilolitre, airlines immediately increased the fuel surcharge by 10 per cent. But when prices were reduced by Rs 3,000 per kilolitre on June 5, following a cut in customs duty, airlines did not pass on the benefit to flyers.

In fact, fares were increased on several occasions. Airlines insist that they cannot reduce fares because they have incurred heavy losses over the past few quarters.

However, analysts feel that the losses have been due to airlines’ own mistakes as they have been doling out cheap tickets as publicity gimmicks.