Air Fares Flew Low as Note Ban Woes Rose

Av­er­age do­mes­tic fares from Nov 1, 2016 to Jan 31 this year de­clined on all key routes com­pared with a year ear­lier

The Economic Times - - Companies: Pursuit Of Profit - Mi­hirMishra@ times­

New Delhi: Air­lines have seen as much as a 35% de­cline in av­er­age do­mes­tic fares in the three months to Jan­uary, as de­mon­eti­sa­tion took away their pric­ing power at a time when they were also adding ca­pac­ity.

Data com­piled by Ya­, In­dia’s sec­ond largest on­line travel por­tal, show that av­er­age do­mes­tic fares from Novem­ber 1, 2016 to Jan­uary 31 this year de­clined on all key do­mes­tic routes com­pared with a year ear­lier. Scrap­ping of the Rs ₹ 500 and Rs ₹ 1000 ban­knotes, an­nounced by the Prime Min­is­ter on Novem­ber 8, drained out more than 85% of the to­tal cash in cir­cu­la­tion. Con­sumers limited spend­ing as re­plen­ish­ing of cash in ATMs and banks mo- ved at a slow pace, crip­pling de­mand for ev­ery­thing from soaps and pack­aged food to au­to­mo­biles and real es­tate. The weak sen­ti­ment, air­lines said, rubbed off on their per­for­mance.

IndiGo, the lo­cal mar­ket leader, blamed the “im­pact on con­sumer spend­ing and be­hav­iour” from de­mon­eti­sa­tion for the fall in fares. “The new mon­eti­sa­tion pol­icy went into ef­fect on Novem­ber 8 and for the full month of Novem­ber, our yields were down 20% and in De­cem­ber our yields were down 17%,” IndiGo chief fi­nan­cial of­fi­cer Ro­hit Philip an­nounced dur­ing the com­pany’s earn­ings call on Jan­uary 31.

The sit­u­a­tion, though, is im­prov­ing. In Jan­uary, the yield de­cline was smaller at about 10%. “Based on the Jan­uary 2017 yield fore­cast, we are hope­ful that the ef­fects of de- mon­eti­sa­tion are largely be­hind us,” Philip had said. SpiceJet chair­man Ajay Singh said dis­cre­tionary travel went down post de­mon­eti­sa­tion, hurt­ing in­ter­na­tional busi­ness that ac­counted for about a quar­ter of the air­line’s rev­enue.

Air­line is an in­dus­try where dig­i­tal pay­ments had al­ready be­come some­what a norm even be­fore de­mon­eti­sa­tion — the gov­ern­ment cites pro­mo­tion of cash­less pay­ments as one of the ob­jec­tives of the note-re­call. Many ex­pected this would in­su­late the in­dus­try from de­mon­eti­sa­tion ef­fect. But last-minute travel, where a chunk of pay­ments was still in cash, took a hit as a re­sult of the liq­uid­ity crunch, hurt­ing the pric­ing power of the air­lines, said ex­perts. “Our pric­ing power was gone, may be, be­cause a lot of last-minute ticket book­ers – cor­po­rate trav­ellers in­clud­ing from SMEs – post­poned or can­celled their travel,” said a se­nior ex­ec­u­tive at a full-ser­vice car­rier who did not want to be iden­ti­fied.

The ex­ec­u­tive, too, re­ported an im­prove­ment in Jan­uary, af­ter “a sharp dip in av­er­age fares dur­ing Novem­ber and De­cem­ber”.

Travel in­dus­try in­sid­ers see an­other rea­son for the im­pact on fares. Air­lines also added ca­pac­ity in re­cent months, which led to a de­mand-sup­ply mis­match.

“We be­lieve that de­clin­ing av­er­age fares are driven more due to the ca­pac­ity ad­di­tion by air­lines. The num­ber of do­mes­tic pas­sen­gers has in­creased by a very healthy 23% over last year de­spite de­mon­eti­sa­tion, which means it never had a ma­jor im­pact on the avi­a­tion sec­tor,” said Sharat Dhall, chief operating of­fi­cer (B2C), at Ya­

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