REASON TO CHEER

Aparliamentary committee has rapped airlines for exorbitant rise in fares, but data shows ticket prices this month are lower on a year-on-year basis. Domestic fares for travel within a fortnight of booking are currently 9-15 per cent cheaper due to increased capacity and competition.

While the rupee strengthened against the dollar, continuous rise in aviation turbine fuel (ATF) prices since July has negated the gains. Due to competitive pressures, however, airlines have refrained from increasing fares.

While airlines are evaluating a fare hike, they, according to analysts, will have to increase ticket costs by around seven per cent to maintain the current level of profitability.

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

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

According to MakeMyTrip, the biggest drop in airfares is on the Mumbai-Delhi route where ticket costs have gone down by around 25 per cent. MumbaiBengaluru is the only route where fares have increased by around 5 per cent. It, however, did not disclose actual fares and shared only comparative increase or drop percentage.

For travel between 15 and 30 days and beyond 30 days, fares, however, have risen both on a year-on-year and six-monthly basis. One of the reasons for increase in advance purchase fares between 15 and 30 days is cancellation of flights in Delhi because of runway closure around the Republic Day and the long weekend coinciding with the occasion.

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

In the past one month, Indian carriers have stepped up aircraft induction from an earlier rate of 1.1 aircraft per week to 2.3 per week. This growth has been led by IndiGo and GoAir, which have added more aircraft in the third quarter. IndiGo has started wet-leasing aircraft to address the shortfall in capacity.

In the past, both carriers had

witnessed delay in aircraft deliveries by Airbus due to issues in the Pratt & Whitney (P&W) engines that were used for A320 neos. Other carriers such as Jet Airways, which has been on consolidation mode, 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.

Cut-throat competition is anotherfactorforsoftnessinfares. “I have not seen such low faresduringbusyChristmasholiday. Usually, one-way Delhi-Goa fare would be priced at around ~25,000, but this year a return ticket was available for the price during the past 10 days,” said a Delhi-based travel agent.

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

The ATF has increased around 22 per cent since July last year, while the rupee has gained two per cent against the dollar during the same period.

“With the ATF currently costing around 30 per cent of airlines’ revenues, a 20 per cent increase in ATF prices will require an average increase of 7-7.5 per cent in fares to maintain the current level of profitability. We hope that a strong demand growth provides enough room,” said Santosh Hiredesai, 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.