Airfares rise as competition fades on domestic routes, shows data

Competition present on only 31% of domestic routes in April 2024, data show

The number of domestic routes in India with no competition surged from 55.2 per cent in April 2019 to 69.2 per cent in April 2024. This means by April this year, only 30.8 per cent of the 1,083 domestic routes had more than one airline operating, according to a report by aviation analytics firm Cirium reviewed by Business Standard.

With reduced competition, airlines have become more aggressive in raising airfares, particularly after the Covid-19 pandemic. For instance, on the Delhi-Mumbai route, average fares dropped by 20.5 per cent between April 2019 and April 2023 but soared by 34.6 per cent in the past year alone. Similarly, on the Delhi-Bengaluru route, average economy fares increased 53.1 per cent in just the last year alone.

This shift in pricing strategy has primarily been driven by the bankruptcies of Jet Airways in 2019 and Go First in 2023, along with SpiceJet’s substantial network reductions due to financial difficulties. By July 2024, IndiGo and the Air India Group controlled over 90 per cent of the domestic air passenger market, according to the Directorate General of Civil Aviation.

As competition has waned, airlines have shifted their focus to achieving higher yields (average revenue per passenger per kilometre) rather than filling planes by lowering fares. 

The new tactic was evident during the long weekend between August 15 and 19, when air travel surged amid Independence Day, the weekend, and Rakshabandhan. On certain routes, the load factors were low, but airlines barely dropped the spot fares, a revenue management executive of a major airline told Business Standard.

“Before the pandemic, on such routes, one or two airlines would drastically cut fares if planes weren't full close to departure. Other airlines would then follow the suit. Now, sudden fare drops are rare. The focus across our industry is on better yields," the executive said.

IndiGo, India’s largest carrier, had no competition on 33.4 per cent of its 491 domestic routes in April 2019. Five years later, by April 2024, the airline faced zero competition on 61.2 per cent of its 838 domestic routes, according to Cirium.

“India has seen a rapid rise in connectivity over the past few years. One way of looking at the monopoly routes is that had it not been for the airline operating, there would not have been connectivity between the two city pairs. Overall, the count of monopoly routes has gone up more or less in line with the count of total routes in operation in India. With the Air India group growing rapidly, a lot of IndiGo monopolies are becoming duopolies,” said Ameya Joshi, an aviation researcher and founder of the aviation blog ‘Network Thoughts’.

Joshi said the duopoly would influence pricing strategies, and the days of airlines dropping fares to fill seats may be over.

“The duopoly will play its part in pricing strategy, and the earlier days of one airline dropping fares to fill seats may well be history, with a maturing market. The pricing strategy in the next two-three years will be dependent on supply chain constraints easing out, availability of planes, and expansion of airports. Currently, with grounded planes and slower deliveries, the growth is not as rapid as it was expected to be,” he said.

The grounding of around 70 of IndiGo’s 380 planes due to Pratt & Whitney engine issues, along with delays in aircraft deliveries to Indian carriers by Airbus because of supply chain problems and by Boeing for regulatory hurdles, has also played a role in the rise of airfares at a time when demand is surging.

The Ministry of Civil Aviation, IndiGo, and Air India did not respond to Business Standard’s queries on this matter.

On August 5, IndiGo promoter Rahul Bhatia said India deserves more than just two major airlines, and that IndiGo’s market dominance is not entirely of its own volition, as certain airlines have fallen by the wayside.

“We welcome the competition. Clearly, a country like India deserves more than just two airlines. Just look at China; they have five or six major airlines and some smaller ones. So, this country (India) clearly has room for others to come out,” Bhatia had told reporters at an event where IndiGo launched its frequent flyer loyalty programme called "Blue Chip" and revealed details about business class on its planes.

Bhatia, who along with his family currently own about 36 per cent of IndiGo, had said that the airline’s growth had been partly due to other airlines exiting the market and that the company is not guilty of creating a duopoly. “Our business is to keep costs low, provide affordable fares, fill up planes, buy more planes, and keep that cycle going,” Bhatia said.