Airfares, which fell a tad in June, might rise again unless some systemic issues are addressed, even as demand is expected to remain high in light of the approaching festive season
Long before the current surge in airfares, New Delhi-based Supreme Court lawyer Sameer Jain found all flights on the Delhi-Dehradun sector chock-full when he was looking for a ticket to fly there on short notice. With only two seats left on a flight operated by a low-cost carrier (LCC), Jain had to shell out Rs 50,000 for the 45-minute flight to the Uttarakhand capital. “There was no other option. And, I had to report for the meeting at a certain time. Thankfully, I got a seat. In a multi-operator scenario and a free economy, prices for air tickets are a function of demand and supply,” remarks Jain, Managing Partner at law firm PSL Partners, while reminiscing about that day nearly seven years ago. Fast-forward to 2023, and airfares have again been heading north since last August, when the government removed fare caps introduced as a result of the Covid-19 pandemic, to prevent airlines from overcharging. In recent weeks, however, fares have moderated slightly, by 4-5 per cent, on certain routes after the government’s intervention.
“It’s a demand-supply situation. As long as the airlines are able to fill up their seats at a certain price, fares will go up,” says Sabina Chopra, Co-founder & COO of Yatra, one of the leading online travel agencies (OTAs) in the country. Giving Goa’s example, she says reservations for flights to the popular tourist destination were on the higher side even during the peak of summer in May and June.
“Domestic airfares have jumped by up to 30 per cent between January 2022 and May 2023, from the pre-pandemic period of January to December 2019,” says Saujanya Shrivastava, COO of Flights, Holidays & Gulf Cooperation Council at the country’s largest OTA MakeMyTrip. With the lifting of Covid-19 restrictions and revenge travel gathering steam, passenger air traffic crossed the pre-pandemic level in December 2022. It’s not simply supply and demand that decides airfare, says Shrivastava. “Multiple factors, including the availability of the operational fleet, movement of crude prices and much more” come into play when determining prices, he explains.
Shrivastava has a point. Crude oil, for example, averaged $65 a barrel in 2019 and $100 in 2022. It even climbed to a monthly high of $133 a barrel (spot prices) on March 8, 2022, on the back of the Russian military action in Ukraine. Other operational costs have also increased. By the middle of last year, most carriers had restored old salaries that were cut steeply during the height of the pandemic. Even costs associated with leasing or purchasing new aircraft are on the rise as a result of the current shortage of planes and rising metal costs. The prevailing high airfares are a direct consequence of all these factors.
Even though more and more Indians are travelling by air, not everyone is enamoured by the high fares. In May, 13.21 million passengers travelled by air as against 12.89 million the previous month, per data from the aviation regulator Directorate General of Civil Aviation (DGCA). Many believe Indian airlines are taking advantage of this jump in demand by charging exorbitant prices. A large part of the blame is attributed to domestic carriers not deploying full capacity on routes approved as part of the current summer schedule (from March 27 to October 29).
But many in the industry disagree. “If the allegation is that airlines are suppressing the capacity to command higher airfares, then such allegations are baseless, unfounded and are made with a very poor understanding of airline economics. The real reason why airlines cannot deploy their full capacity is technical,” says Arun Kumar Singh, CEO of Ahmedabad-headquartered regional carrier IndiaOne Air. Singh is quick to point out that the cumulative fleet size for all civilian airlines in April 2023 was 722 aircraft; of which 116 were grounded. Due to the grounding of Go First in May, that number has increased to 142. “This is a temporary problem and the situation can be expected to change for the better within a few months,” he adds.
Further, Indian full-service carriers and LCCs made consolidated cumulative losses of Rs 98,252 crore between FY13 and FY23, with FY16 being the only year when the industry posted a profit of Rs 223 crore, according to data compiled by BT. However, Jitender Bhargava, former executive director of Air India, is quick to dismiss this line of argument. “You cannot have a situation that just because you have sustained losses in the past you get an inherent right to charge extraordinarily high fares. Take for instance automobiles; have their prices gone up disproportionately just because fewer vehicles were sold during the pandemic?” Rather, he suggests that cost inputs such as high central and state government taxes on aviation turbine fuel be rationalised to give airlines relief.
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