Air fares may head north in '07

Slower fleet expansion, fewer new flights could end cheap travel option.

Slower fleet expansion and fewer new flights on various routes as a result of growing airport congestion are expected to have a major impact on air fares in 2007.

In 2006, when the market was growing at 40 per cent, the growth of aircraft induction was 46 per cent. This is expected to slow to 20 to 25 per cent in 2007. Passenger growth, however, will continue at 35 to 40 per cent.

Sources say at least 6 to 7 new aircraft were inducted every month in 2006. This year, the monthly additions are not expected to cross two to three aircraft.

As a result, industry expects the passenger load factor to improve from the 55 per cent in 2006 to 65-70 per cent this year.

Indian carriers, which had posted losses of over Rs 1,800 crore owing to intense tariff competition, are now concentrating on improving margins.

"We will take delivery of 8 ATRs and 4 Airbus A320s this year, against 10 ATRs and 8 Airbus last year," says Air Deccan Managing Director Capt G R Gopinath.

Airlines such as GoAir are looking at adding capacity from only the peak season starting October. SpiceJet will be leasing its aircraft to other carriers and will use them for its own operations only once the peak season starts.

Predicts SpiceJet Director Siddhanta Sharma, "There will be a slowdown in aircraft induction because the infrastructure is not growing at the pace of domestic aviation growth."

The new private airports at Bangalore and Hyderabad will be ready at the end of 2008, while Delhi and Mumbai will see new capacity by 2010.

Adds a senior Jet Airways executive, "We are expecting some sanity in the market this year. Airlines will not drop prices madly because there will not be any excess capacity in the market due to this slowdown."

The Ministry of Civil Aviation (MoCA) has taken steps to arrest aggressive capacity addition by not permitting additional slots for airlines during the summer schedule in Mumbai and Delhi. It is also contemplating differential tariff for peak and non-peak hours.