On April 19, Vistara announced a summer sale. It was quickly followed by sister airline AirAsia India’s Break from Home sale. Both Tata group airlines offer fares starting at Rs 2,499. Market leader IndiGo jumped in as well, with fares starting at Rs 2,491.
A day later, Go FIRST joined the bandwagon, offering fares at Rs 2,490, a rupee less than IndiGo! The sale fares are on offer until April 25. SpiceJet jumped in with its Fly Away sale valid until April 25, offering fares starting at Rs 2,492.
While the booking period is immediate, the travel period is between June and September, which also takes care of the 15-day rolling fare caps in Indian skies that continue to exist even after the withdrawal of capacity caps.
The sale announcements came within days of the country recording the highest domestic passenger traffic since the restart of operations after the COVID-19 lockdown but at same time also experiencing an increase in the number of active cases of the viral disease.
Airlines sales are not new. The periodic sale cycle is done with multiple objectives. A sale stimulates the market. Many fence-sitters jump in with a booking in the hope that they have got a better deal. A deadline puts people under pressure to finalise their travel plans in anticipation of an increased fare after the sale period. The airlines get higher cash flow during the sale. Overall it has been a win-win all along.
The objective of the sale is to fill up seats which otherwise would have been empty. The highest cost for any airline is that of an empty seat. Once the flight takes off, the unsold seat remains unsold. This involves analytics, seasonality and more to decide which seats to offer as part of the sale, how many seats to offer and from which sectors in the network.
But the sale this time is different. Just months ago in late December and early January, airlines were offering another mega sale. This involved travel between mid- January and mid-April. The difference? The prices then were less than half of what is on offer now! Airlines had priced their tickets under sale at Rs 1,122. As always they were for select sectors but that's the caveat which does not change in any sale.
With limited seats and sectors at tge lowest prices, airlines -- at least for reasons of marketing -- drop the prices. This time around? The lowest prices are actually higher than the floor price under price caps! In effect, airlines could have started this sale for flights starting the same day without violating the price caps.
What is different this time?
Input costs have gone up drastically since the end of December. Aviation Turbine Fuel (ATF), which makes up about 37% of all costs for airlines, is priced at Rs 1,13,202.33 per KL in Delhi, the largest airport in the country. This is up 48.8% over the price on January 1. This has led to ATF accounting for a larger percentage of expenditure, which is being passed on in some form or another as airlines try to make ends meet.
Travel has rebounded. While the pre-COVID mark is yet to be breached, there is some certainty after the behaviour pattern in the Omicron-led increases in cases during the January-February period that travel will not be impacted as badly as in the second wave. While the monsoon has traditionally not been a high season, things have changed over the last couple of seasons to an extent that traditional non-monsoon destinations like Goa also attract traffic during the period.
Lastly, the January-to-April period is a traditionally weak one for travel in India. The second half of the year is full of festivals. Some of the holidays fall on a Friday or a Monday, leading to a long weekend, or passengers opt for leave to take a longer weekend off. This confidence also helps airlines price tickets higher!
Tail Note
What would happen if the airlines are not able to fill up as many seats as projected? The airlines definitely have the option of starting another sale! A prolonged war in Ukraine leading to higher crude oil prices, no immediate signs of ATF prices dropping, pressure to restore salaries to pre-COVID levels are some of the reasons why fares have inched up as airlines try to make ends meet.
With Air India now in the Tata fold and the country largely divided into two major group-controlled airlines, will it lead to pricing discipline and is this part of the phenomenon? This could mean that it is time to bid goodbye to 20% growth rates but instead focus on sustainable, moderate growth that both passengers and airlines can live with.
