Silver lining for domestic carriers: Amid coronavirus scare, jet fuel prices drop

The outbreak of coronavirus is proving to be a mixed bag for the Indian aviation industry. While the sector is one of the worst affected due to a drop in passengers, coronavirus has some silver linings for the domestic aviation industry as there is a drop in the jet fuel prices.

Crude oil prices have softened which also reflect on the aviation turbine fuel (ATF). The resulting drop has been the sharpest slip in ATF prices since October-December 2018, The Indian Express reported citing ICRA data. From Rs 64,323 on 1 January 2020 to Rs 63,449 on 1 February 2020, the ATF prices have dropped, according to data from Indian Oil. The ATF issue has been troubling the industry for some time now.

A decline of $1 in ATF prices translates into a positive impact by 0.5-0.7% on the profit margins of carriers. However, the impact of coronavirus is expected to loom large on domestic carriers as demand for international air travel has dropped.

Going ahead, Air India is likely to get hit as it carries a significant number of passengers from Europe to India. Coronavirus is seeing a fresh wave in Europe with Italy alone having over 400 cases of patients, according to authorities. Other European countries such as Austria, Croatia, Greece, Norway, Switzerland, among others have also reported first cases of coronavirus. Coronavirus has claimed over 2,800 lives so far.

The potential loss of the Asia Pacific region is pegged at 13% for the full year, according to a report by International Air Transport Association (IATA). However, if the outbreak spreads rapidly to Asia Pacific markets, airlines will bear a more pronounced loss, according to IATA.

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