Despite a surge in passenger traffic, Indian carriers have struggled to raise fares, data shared by International Air Transport Association (IATA) shows. The data shows that domestic airfares have consistently stayed close to or below their 2015 levels and have not been able to keep up with jet fuel price and inflation. This, despite a surge in number of flyers which has increased by over 62 per cent since 2015.
While prices jumped sharply in 2023, when travel picked up in 2022 after two years of closure in COVID, airlines say that normalcy has returned.
“I think there has been some correction in air fares. But I don’t think it’s been anywhere close to what the perception might be. If prices haven’t kept up with inflation, then airlines are not even covering their operating cost as general inflation doesn’t factor in the high inflation that airlines have faced because of fuel,” Director General of IATA told Willie Walsh in an interview.
How is this possible? Competition is a constant in the airline business. If prices get high, another airline swoops in, sensing opportunity. Consolidation in the Indian aviation market, which has seen the closure of three airlines in the last decade and multiple mergers have not accrued any benefit to the industry, experts said.
The capacity lost due to the shutdown of Jet Airways was recouped in nine months. And when Go First with 54 planes went bankrupt in 2023, IndiGo, Air India and Akasa rushed to add more than 90 planes since then.
Airline executives said that the recent consolidation which has reduced the market to an effective duopoly with IndiGo and Air India carrying 9 out of 10 domestic flyers will not change the scenario.
With the induction of so many new aircraft, airlines must find new routes where they often find that even a difference of Rs 200 makes the passenger opt for a train rather than a flight.
“Globally wherever we have seen consolidation and creation of large airlines it has been very positive for the consumer as more cheaper fares become available because typically airlines are then able to spread their fixed overheads over a much bigger operation,” Walsh said.
An executive of IndiGo said that on newer routes, price stimulation becomes necessary to convert a rail passenger into an airline customer.
“ Due to the competitive dynamics of aviation business, the ticket price will remain comfortable for the customer as we all have to fill up our planes,” Air India CEO Campbell Wilson said.
Aviation research firm CAPA said that profitability on domestic routes will become tougher once supply side constraint is removed especially if SpiceJet can take benefit of capitalisation.
Similarly with regional international, profitability will take a hit with Indian carriers alone deploying over 250 planes over next five years.
India, among the fastest-growing major aviation markets, took centre stage at the industry’s largest gathering of global airline CEOs and aircraft leasing companies in Dubai last week, with domestic and international air travel surging. The domestic air travel market in India is expected to double to 300 million passengers from a record 152 million in 2023, according to government data.
While currently there is a lull, capacity induction by big players like IndiGo and Air India is likely to be three times of GDP growth which will undo the benefits of consolidation,” CAPA said.
Market leader IndiGo with more than 60 per cent of the domestic market reported a loss of in July-September, their worst session since March 2022 as it failed to increase price enough to cover up for cost which rose by over 16per cent. Pieter Elbers CEO said that the consolidation will increase competition and airlines will have to focus on cost control to make money.
“The Indian market is one of the most price sensitive markets in the world. The market will continue to stay competitive. Both airlines will eventually have to deal with their shareholders and make sure that they offer a price which is in line with their costs,” Elbers said.
