Threatening the growth momentum in the economy, the
surging crude oil prices have started giving sleepless nights to the country's aviation barons whose profitability has come under a cloud.
As civil unrest engulfs the Middle East, especially
Libya, prices of Brent crude oil on Thursday touched a 30-month high of $120 a barrel, up seven per cent in a day causing concern in the whole world and panic selling across major stock markets.
According to some analysts in the US, Brent crude prices could near $158 a barrel by the year end. In mid-2008, Brent crude priced had crossed $147 a barrel forcing airlines to park some of their planes to cut down on their fuel bills.
In early January when crude prices were hovering at around $90 a barrel, some airlines had increased their fuel surcharge to offset the extra outgo.
However, this time their hands are tied due to the upcoming lean season.
"The sudden rise in oil prices will have a short term impact. But prices should stabilise. Anything beyond $95 a barrel will affect airlines," said Kapil Kaul, chief executive officer (CEO) (South Asia), Centre for Asia Pacific Aviation (CAPA), an aviation consultancy.
"Airlines may tinker a little bit with pricing but cannot afford to hike fares at this time. There is not much scope to increase surcharge to retain passengers. There is an issue in profitability in the January-March quarter due to the oil factor," Kaul added.
From early 2010, the Indian aviation sector has been on a revival path, with passenger numbers growing by 18 per cent.
For 2011, the sector was projected to grow at 20 per cent but the impact of the oil prices could jeopardise these predictions.
"We are bullish about the future, but oil prices have caused concern in the whole industry," a Kingfisher Airlines official said.
He declined to comment further.
CAPA had estimated that all airlines in India would post a combined net profit of $300 million in 2010-11. But this could not be achieved due to the oil factor.
According to oil analysts, the sudden spurt in international crude oil prices is the result of a knee-jerk reaction to the Libyan crisis. They feel that speculators are creating a fear psychosis to profit from the situation.
"The global sentiment has been affected and this has been created by speculators. At $120 a barrel, not much trading has been done, but this has created enough panic in the whole world.
In India we don't buy from Egypt and Libya but everyone is concerned,"said an oil analyst from a major petroleum company.
India buys crude oil from a host of sources to meet its requirement and it is called the India basket. Its pricing is different from Brent crude or West Texas Intermediate (WTI) pricing, which are international crude benchmarks. In February, the Indian basket averaged $99.37 a barrel, nearly six per cent higher than the January average.
Teetering on the brink- Some analysts in the US see Brent crude prices touching $158 a barrel by 2011-end.
- From early 2010, the Indian aviation sector has been on a revival path.
- The sector is likely to grow at 20 per cent in 2011 but high oil prices could hurt it.
- Analysts feel that speculators are creating a fear psychosis to profit from the Libyan crisis.
- Oil marketing companies are gearing up to take a big hit in their profitability since they sell petro products at below cost of production.
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