File photo of Ajay Singh, chairman of SpiceJet Ltd., at a conference in Delhi. (Photographer: Anindito Mukherjee/Bloomberg)

Airlines Must Offset Rising Costs By Hiking Fares, Says SpiceJet’s Singh

Airlines may have to increase fares marginally to pass on their increased operating costs to flyers, said the chief of one of the country’s low-cost carriers.

“The fares are extremely reasonable at this time,” said Ajay Singh, the chairman and managing director of SpiceJet Ltd. “I don’t think it will impact the consumers to pay 10-12 percent more than they are currently paying.”

And Singh said the fare hike will not impact passenger travel. “We believe that the inherent demand is so strong.”

Airline companies in the world’s third-largest aviation market are facing a difficult time as fuel prices rose nearly 20 percent this year even as intense competition drove down ticket prices.

The government, on Oct. 11, cut the excise duty on aviation turbine fuel from 14 percent to 11 percent. That may not amount to much as aviation fuel—which comprises a third of the operational expenses of airlines—is taxed at around 40 percent, which includes both central and state government levies.

“Operating costs have gone up tremendously in the last one year because of rise in oil prices and a depreciating rupee,” Singh said. “This percent reduction is a welcome step, but we hope state governments reduce VAT (value-added tax) by 3 percent.”

The priority for airlines, Singh said, is to raise fares and increase yields. “In addition, the central and state governments need to work together to bring our taxation terms on a par with global peers.”