Why airfares in India are going through the roof
The Indian Express | 2 days ago | 07-06-2023 | 12:45 pm
The Indian Express
2 days ago | 07-06-2023 | 12:45 pm
Airfares in India are soaring. While they had started firming up last year itself as travel demand rebounded after the Covid pandemic subsided, this year’s summer travel season has seen an unusually high spike in ticket prices. Go First’s bankruptcy plea and subsequent suspension of its flights joined other factors such as surging demand and capacity constraints, among others, in forcing flyers to pay through their noses bang in the middle of the country’s peak summer travel season.Social media platforms are replete with consumers complaining about surge pricing. The government, too, has taken note of “abnormal surge pricing on certain routes” and asked airlines to “self-monitor” and devise a mechanism to ensure reasonable pricing on such routes.Any respite in the near term, however, is likely only if and when the tidal wave of travel demand ebbs, which is likely only once this year’s peak summer travel season is behind us. Longer-term price stability and affordability will depend on various other factors too, including travel demand trajectory, the pace of capacity addition by airlines, and jet fuel prices and other cost centres.A perfect storm: High demand, capacity constraints, Go First bankruptcyOn May 2, Go First announced that it was voluntarily filing for insolvency and the airline has not operated even a single flight since May 3. In April, the Wadia group airline had ferried close to 8.3 lakh flyers and held a domestic market share of over 6 per cent. The sudden disappearance of Go First’s capacity from the market was the last thing consumers needed. Market leader IndiGo and SpiceJet were already affected by capacity constraints as parts of their fleet were grounded due to different reasons.On the other hand, demand surged, notwithstanding high airfares. As per preliminary industry data, May saw over 1.3 crore domestic flyers, up from March and April, and likely higher than or at least comparable with the pre-pandemic peaks. For some time now, industry insiders have been highlighting that flyers seem to be willing to shell out more on travel after the pandemic. The pent-up demand from the pandemic, which scuttled travel plans of many people for up to two years, just does not seem to be abating.“Despite an increase in airfares by about 35-40 per cent for domestic routes compared to the previous year, our customers are displaying an increased appetite for travel spending. The surge in domestic airfares for favourite tourism routes are resulting in international short hauls becoming an attractive option in comparison,” said Indiver Rastogi, President & Group Head of Global Business Travel at Thomas Cook (India) and SOTC Travel.Even as other carriers did depute additional capacities on routes where Go First was a sizable player, the demand-supply mismatch could not be fully mitigated.Although airfares generally have been higher in recent weeks, it is worth noting that abnormal surges have been witnessed mostly on routes with a strong Go First presence and some others seeing rapid growth in demand. Also, surges are mostly seen in cases where flights are being booked closer to the date of travel.Go First’s absence has rewarded other airlines in the form of higher load factors. But very high load factors are a problem for flyers, particularly those who book their tickets last minute or very close to the date of travel, as very limited available inventory means they are likely to be offered seats in the top fare buckets.Most-affected routesAccording to industry insiders, routes affected the most are the ones connecting major cities with airports like Leh, Srinagar, Goa, Bagdogra, Ahmedabad, and Pune, and other popular travel destinations like Andamans and Kerala.“Despite the current situation with capacity constraints driving airfares, Indian travellers are making the most of the summer vacation period. We are witnessing brisk demand of over 3x compared to last year. Airfares for popular leisure sectors from Mumbai, Delhi and Bengaluru have witnessed a surge versus last month–Leh 60-80%, Srinagar, Chandigarh, and Port Blair 50-70 per cent, and Kochi and Goa 40 per cent,” Rastogi said.According to Sabina Chopra, Chief Operating Officer for Corporate Travel and Head of Industry Relations at Yatra.com, the travel booking website is seeing 20-25 per cent higher demand in the domestic travel sector compared to pre-pandemic levels. As compared to the summer travel season last year, Yatra.com has observed an increase of 15-20 per cent in domestic airfares.With regard to routes affected the most by the suspension of Go First flights, Chopra said, “According to our data, the most popular routes were Srinagar, Ladakh, Delhi-Mumbai, Mumbai-Bangalore, and Bangalore-Chennai. These routes had consistently witnessed high demand and had played a pivotal role for the airline.”Higher fuel cost vis-à-vis pre-pandemic periodThe cost of aviation turbine fuel (ATF), or jet fuel, might not be playing a role in month-on-month or even year-on-year rise in airfares to current levels, but it is a significant factor in how fares have moved between the pre-pandemic period and the present. ATF is the single-biggest cost for airlines and for Indian carriers, it accounts for over 40 per cent of their operational expenses.While the price of jet fuel has cooled off from year-ago levels and is also lower than in preceding months, it is significantly higher than the levels seen in 2019 and early 2020, just before the pandemic brought the aviation industry to its knees. As per data provided by the country’s largest fuel retailer Indian Oil Corporation (IOC), jet fuel is currently priced at Rs 89,303.09 per kilolitre, down from Rs 95,935.34 in May and significantly lower than the peak of Rs 1.41 lakh in the second half of June 2022. However, when compared to March 2020 and June 2019, jet fuel prices are currently higher by 57 per cent and 37.4 per cent, respectively.“Due to the escalating fuel costs, airfares have seen a significant rise of 30-40 per cent across all domestic routes (compared to pre-pandemic levels),” Chopra said.
