Why flying is expensive right now and likely to stay this way for some time

Despite the busy summer travel months being over, the prices of airlines do not seem to be going down. Here are the factors that might be affecting these prices:

Airfares in India have witnessed a significant increase, particularly during this year's summer travel season with Go First out of the picture. Factors such as rising demand and capacity constraints, as well as the insolvency of Go First have contributed to the soaring ticket prices. 

Fallout from Go First's insolvency

Go First, an airline operating under the Wadia group, declared insolvency in May, causing a sudden reduction in capacity. This further strained the already affected market leaders IndiGo and SpiceJet, who had already faced capacity constraints due to fleet grounding. Despite high airfares, the demand for air travel surged, with May witnessing a significant increase in domestic flyers compared to the pre-pandemic period.

 

A demand-supply mismatch

Even though other airlines increased their capacities on routes previously served by Go First, the demand-supply mismatch persisted. Abnormal surges in airfares were primarily observed on routes with a strong Go First presence and others experiencing rapid growth in demand. This was especially on routes like Leh, Goa, and Ahmedabad which were some of the top destinations for airlines.

Such surges were more common for bookings made closer to the travel date. The higher load factors benefited other airlines but caused inconvenience for last-minute or close-to-travel date bookings due to limited available inventory, reported Indian Express (IE).

Role of aviation turbine fuel

The cost of aviation turbine fuel (ATF), or jet fuel, plays a significant role in airfares. While it may not be the sole reason for month-on-month or year-on-year increases, it can contribute to airfares rising. However, fuel prices reported by the Indian Oil Corporation (IOC) have been going down steadily in the last two months.

The current price of ATF prices in Delhi sits at Rs 89,303.09 per kl, down by Rs 9,046.5 from its previous month. In March the prices in the national capital were Rs 1,07,750.27 per kl, which decreased by Rs 9,400.7 per kl in April at Rs 98,349.59 per kl.

Despite the decrease in prices, flight tickets did not go down during the summer travel season. However, should the prices continue to go down, airlines may lower airfares in the coming months.

The fuel prices had reached their peak in June 2022 at Rs 1,41,232.87 per kl in Delhi.

Although jet fuel prices have reduced from their peak during the pandemic, they remain significantly higher than the levels seen in 2019 and early 2020. For instance, the price of jet fuel in January 2019 was Rs 58,060.97 per kl in the Delhi.

Risk of gouging

In an interview with PTI, the CEO of Akasa Air, Vinay Dube warned against “gauging”. When it comes to pricing, this term is used to explain situations where prices are increased to take advantage of “micro-environmental situations”. Dube stated that this was also a major concern for the government. 

He said, "Gouging is just not a good thing. The airfares on average in India are the most customer friendly in the world in any kind of sizable aviation economy. The Indian consumer average has one of the best airfare regimes you can find anywhere in the world. That is a fact and we have some of the cheapest average fares anywhere in the world."

Government speaks to airlines about rising fares

The government had taken notice of the abnormal surge pricing on certain routes and has urged airlines to self-monitor and ensure reasonable pricing on Monday, June 5. PTI reported that during a meeting of the airline advisory group, the civil aviation minister, Jyotiraditya Scindia, stated that a mechanism to ensure reasonable airfare should be devised and monitored by the Directorate General of Civil Aviation (DGCA).

While temporary relief may come when travel demand subsides after the peak summer season, long-term price stability and affordability depend on various factors. 

The ministry also stated that in light of the Odisha tragedy, airlines should provide free cargo to the families of the deceased.

Scindia had also informed the Lok Sabha on March 16 that airfares are not established nor regulated by the government. In a written reply, he added, "The airline pricing system runs in multiple levels (buckets) which are in line with practices being followed globally. The prices are fixed by airlines keeping in mind the market, demand, seasonality, and other market forces. The airfare increases with a rise in demand for seats as the lower fare buckets get sold out fast when bookings are offered by airlines."

Which locations were most impacted by this?

Popular travel locations with airports like Leh, Srinagar, Goa, Bagdogra, Ahmedabad, Pune, Andamans, and Kerala have faced some of the highest airfares.

These were also some of the most frequented areas by Go First airlines.

Indiver Rastogi, the president of Thomas Cook (India) told IE that despite capacity constraints and rising airfares, travellers are making the most of the summer vacation period, resulting in brisk demand compared to last year.