IndiGo Shares Surge 4% After Airline Imposed Fuel Surcharge To Offset Rising ATF Prices

Shares of InterGlobe Aviation surged 4% as the airline introduced a fuel surcharge on domestic and international routes from October 6 to counter rising ATF prices.

InterGlobe Aviation Limited, the parent company of IndiGo, has announced a fuel surcharge on domestic and international routes, with effect from 6 October, to offset rising ATF prices. IndiGo shares jumped over 4 per cent to Rs 2568 on the NSE after the announcement. This decision reflects the ongoing challenges faced by the airline industry due to fuel price fluctuations.

"The decision follows the significant increase in ATF prices, which have surged in the last three months with consecutive price hikes every month. ATF accounts for a substantial portion of an airline's operating expenses, necessitating a fare adjustment to address such a cost surge," said the airline in its statement. The charge is applicable to all international and domestic flights.

Over the last six months, IndiGo's stock has seen an impressive rise of nearly 30 per cent, with the government implementing its fourth consecutive monthly increase in jet fuel prices in October. This consistent upward trend in jet fuel costs has prompted the need for fare adjustments by airlines to manage the growing impact of these heightened operational expenditures.

Indigo faced challenges due to high fuel costs in the early quarter. Revenue per available seat kilometer (ASK) was Rs 5.12, while the cost per ASK was Rs 4.17. While the company's total cash grew by 43.7 per cent to Rs 27,400 crore, the debt increased by 18 per cent to Rs 46,292 crore. The yield per passenger dropped from Rs 5.24 to Rs 5.18.

IndiGo Airlines imposes a fuel charge on passengers when booking flights, and the amount of this charge is determined based on the distance of the flight. The country’s largest budget carrier holds more than 60 per of the domestic market.

Specifically, for flights covering distances ranging from 0 to 500 kilometers, passengers will incur a fuel charge of Rs 300. For flights with distances spanning 501 to 1,000 kilometers, the fuel charge will amount to Rs 400. Likewise, for distances falling within the range of 1,001 to 1,500 kilometers, 1,501 to 2,500 kilometers, 2,501 to 3,500 kilometers, and 3,501 kilometers and above, passengers will be subject to fuel charges of Rs 550, Rs 650, Rs 800, and Rs 1,000, respectively.

Earlier, the fuel surcharge was imposed in 2018, which was subsequently removed after fuel prices were reduced.

According to a price notification from state-owned fuel retailers, the central government has raised jet fuel prices by 14 percent this month, 8.5 per cent in August, and 1.65 per cent in July.

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