Domestic airfares get 9-15% cheaper on increase in flights and competition

Significant capacity addition by airlines may prove a deterrent despite increase in fuel price

A Parliamentary Committee has rapped airlines for the exorbitant rise in fares but data shows ticket prices in January are lower on an annual basis. Domestic fares for travel within a fortnight of booking are 9-15 per cent lower now owing to increased capacity and competition.

While the rupee has strengthened against the dollar, continuous rise in aviation turbine fuel price since July has negated the gains. Owing to competitive pressures however airlines have refrained from hiking fares. 

While airlines are evaluating a fare hike, analysts say airlines would have to increase fares by around 7 per cent to maintain the current level of profitability.

According to data compiled by online portal MakeMyTrip, the average industry-wide fares for same day and next day travel have reduced 9-11 per cent compared to last January. Fares for travel up to seven days and between seven-fifteen days are 11 and 15 per cent lower.

MakeMyTrip (MMT) said the maximum dip is in Mumbai-Delhi route where fares are lower by around 25 per cent while Mumbai-Bengaluru route is the only sector where fares have increased by around 5 per cent.

MMT did not disclose actual fares and shared only the comparative increase or drop percentage.

Similarly compared to last July, fares in January are 10-15 per cent lower for travel within a fortnight of booking.

The exception is fared for travel between 15-30 days and beyond 30 days, which show a rise both on annual and semi-annual basis. One of the reasons for an increase in advance purchase fares between 15-30 days is cancellations of flights in Delhi because of runway closure around Republic Day and long weekend coinciding the occasion.

"Significant capacity addition combined with the need for load factors has prompted the airlines to maintain reasonable fares and not pass on higher input costs to travellers,” said Balu Ramachandran, head (air & distribution), Cleartrip.

In the last one month, Indian carriers have stepped up aircraft induction from an earlier run-rate of 1.1 aircraft per week to 2.3 per week. This growth has been led by IndiGo and Go Air which have added more aircrafts in third quarter. IndiGo is also known to have commenced wet leasing of aircrafts to address the shortfall in capacity. In the past, both the carriers had witnessed delays in aircraft deliveries by Airbus due to issues in the Pratt & Whitney (P&W) engines that were used for the A320 neos. Other carriers like Jet Airways, which has been on a consolidation mode, have used this opportunity to revisit their growth plans, and have been adding capacity in the domestic market.

“There was over 12 per cent increase in flights in 2017 compared to 2016. All other metros except Mumbai saw an increase in domestic departures, ” said Ameya Joshi, founder of aviation blog NetworkThoughts.in.

Cutthroat competition is another factor for softness in fares. “ I have not seen such low fares in busy Christmas holidays. Typically one-way Delhi-Goa fare would be priced at around Rs 25,000 but this year a return ticket was available for the price during the last ten days of fares,” said a Delhi-based travel agent.

The inability to raise fares to compensate for the hike may lead airlines to control the non-fuel costs to reduce expense. “ Nobody likes to see an increase in fuel price, we had hedged some fuel when the price was low. We would take steps reduce our expense by increasing utilisation of aircraft, reducing distribution cost and other maintenance costs,” said Leslie Thng, CEO of full-service carrier Vistara. He said that there will be no cuts in passenger amenities due to rising expense.

Aviation turbine fuel price (ATF)  has increased around 22 per cent since July while Rupee has gained 2 per cent against the dollar in the same period.

"With the ATF currently comprising around 30 per cent of the airlines' revenues, a 20 per cent increase in ATF prices would require an average increase of 7-7.5 per cent in fares to maintain a current level of profitability. We believe the strong demand growth provides enough room to absorb incremental capacity," said Santosh Hiredesai, an analyst with SBICAP Securities.

“ I don’t think fares will increase immediately but going ahead we may see a reasonable increase in fare of tickets which are booked closer to travelling date,"  said SpiceJet chairman Ajay Singh.