Sticky High Airfares Do Not Herald End Of Cheap Air Travel

Sky-high airfares have become the defining feature of air travel in India over the last few months as ticket prices remained elevated even after the peak festive season and the passenger traffic showing no signs of slowing.

The situation contrasts with the Indian aviation's legacy of being a price-sensitive market, where the dominant low-cost airlines often get caught in a downward spiral of lowering ticket prices to attract the flyers.

With supply trying to catch-up with the demand, the million-dollar question is whether the air travel in India has changed fundamentally with carriers finally showcasing pricing power?

"Capacity shortages are a part of it, but it's also about the Indian airlines getting their act together," said Kapil Kaul, chief executive officer of CAPA India.

Airlines are setting prices with profitability in mind and with a clear intention to maintain discipline. Passengers are also "willing" to spend more, the consulting firm said in a presentation at the CAPA India Aviation Summit. This is the first time in 20 years that the industry is seeing this twin phenomena, it said.

According to the aviation consulting firm, more than 100 aircraft or around 15% of the Indian airlines' fleet is grounded due to supply-chain issues and non-availability of engine spare parts. This has led to a shortage of capacity when more and more passengers are looking to fly.

Passenger traffic has slightly come down from the near three-year high in December. But there were days in February—traditionally considered an off-season month—when the average daily traffic remained way above the 4-lakh mark, a threshold indicating the boom in air travel. This record-breaking run is likely to continue.

Addressing the recently concluded summit, Civil Aviation Minister Jyotiraditya Scindia said India was witnessing daily traffic of 4.2-4.4 lakh passengers at the moment and the number is set to surpass the earlier peak of 4.56 lakh by October.

Airfares Maintain Altitude

Multiple airline executives who gathered at the CAPA summit talked about flights taking off with hardly any empty seats and indicated that more hikes in airfares might be on the cards in the coming months.

SpiceJet Ltd. CEO Ajay Singh expects record yields and passenger traffic in the summer. Yield is the measure of the profitability per seat on a flight.

"In the current market, we are witnessing a more than 40% increase in airfares with the summer travel season approaching," Nishant Pitti, CEO and co-founder of EaseMyTrip, said in a written response to a question by BQ Prime.

The aviation industry was among the worst hit when Covid-19 pandemic led to a complete halt in people's movement. Even after the resumption of economic activity, the high jet fuel prices and foreign exchange losses made it difficult to make money.

The two-listed entities—InterGlobe Aviation Ltd., which runs IndiGo, and SpiceJet—have reported losses in 10 out of the last 12 quarters.

The only profitable quarter has been the October–December period in the last two years when the festive season led to an increase in air travel.

The airlines are now looking to shore up profits after accumulating losses over the last couple of years. And the difficulty in inducting new aircraft amid supply-chain issues will only mean that passengers will have to spend more to fly on the same routes.

Clear evidence of one such occasion was witnessed a few months ago when flying to Dubai or Bangkok was cheaper than going home around Deepavali.

Airfares are expected to remain steady with little to no fluctuation in the upcoming months. This predictability in ticket pricing is "reassuring" for travelers and provides a sense of stability for the industry, according to Pitti.

A Fundamental Shift?

Industry participants said the current situation doesn't necessarily mean that India's low-airfare regime was over and the market will remain price sensitive as the penetration of air travel rises in the country.

They said the balance between supply and demand would be more in the favour of the flyers once the supply-chain issues were resolved.

When the grounded aircraft will be re-inducted, a lot of issues may be alleviated, an executive at a low-cost carrier told BQ Prime on the condition of anonymity as they are not authorised to speak to the media.

The experts pointed out that there were previous instances also of airlines exercising pricing power.

"We have seen such scenarios before as well after Kingfisher Airlines and Jet Airways went down," Sidharath Kapur, director of aviation consulting firm IQ Square Pvt., said. "We shouldn't see the current situation as a fundamental shift in the industry."

Although it is true that airlines are maintaining pricing discipline, a large part of passengers will remain price-conscious and lower airfares are expected to make a comeback when the capacity increases, he said.

Also Read: Indigo, Air India Or SpiceJet? Know Which Was The Most Punctual Airline In Feb