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Domestic airfares unlikely to drop back to pre-COVID levels as airlines battle cost surge

Airlines are in no mood to start a fare war at a time when global supply chains are disrupted and fuel prices are still at very high levels after the Russian invasion of Ukraine.

November 11, 2022 / 07:25 PM IST

Domestic airfares are unlikely to drop back to pre-COVID levels anytime soon as airlines battle surging costs of fuel and labour, airline executives say.

"Pre-COVID airfares in India were unsustainable. Only one airline was reporting a profit back then, at a time when jet fuel prices were half compared to current levels,” a senior airline executive said.

“Even now, despite high demand, airlines are reporting high losses. This indicates airfares needed to rise in India,” the executive added.

Most airlines are in no mood to start a fare war at a time when global supply chains are disrupted and fuel prices are still at very high levels after the Russian invasion of Ukraine, the same person added.

“It’s unusual. You have demand quickly outstripping supply in India. I think we might a couple of months where demand and supply may not be aligned,” another senior executive, from IndiGo, told Moneycontrol.

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Fare hikes seen amid multiple challenges 

The executive added that while airfares are unlikely to fall anytime soon, there may be partial hikes in ticket prices if crude keeps rising and a global recession deepens

"Pilot shortages, aircraft delivery shortages from both Boeing and Airbus, Air Traffic Control saturation and airport infrastructure constraints around the world are all real, and they are constraints that will take years to resolve," a senior executive at another domestic carrier added.

Similarly, a GoFirst executive said that while demand for travel has returned to pre-COVID levels in India, high fuel prices and lower capacity is likely to keep airfares from falling to pre-COVID levels anytime soon.

"Supply chains issues are expected to improve in the next six months, but it has impacted the capacity addition plans of Indian aviation for the next two years," the GoFirst official said.

Grounded aircraft 

According to aviation consultant CAPA, more than 75 aircraft, or around 10-12 percent of the fleet, have been grounded, creating challenges for Indian airlines amid an already hostile cost environment.

CAPA said airline capacity has been hit by serious supply chain issues that could proliferate in the next fiscal year starting April 2023.

This is not just impacting current aircraft deliveries, but will also have an impact on future deliveries.

CAPA India has also revised its estimates of the losses Indian carriers will face in the financial year 2023, upping it to around $2.5 billion from the previous $1.4-1.7 billion.

The consulting firm said the situation will continue to remain challenging because of geopolitical factors affecting fuel costs and causing supply chain issues.

Aircraft and engine manufacturers are facing issues in sourcing raw materials and components. Both Airbus and Boeing are struggling to source titanium and titanium ore due to the Russia-Ukraine war and sanctions against imports from Russia.

Rise in domestic airfares 

“If you look at the Delhi-Bombay route, an ticket average costs around Rs 5,000 to Rs 6,500 at the moment, which is much higher than the prices seen before the pandemic and even last year,” another senior official from a domestic airline said.

The average price of a one-way ticket between Delhi and Mumbai was Rs 2,300-2,500 in June 2019. In September 2022, the average price of a one-way ticket between the two cities had risen to Rs 4,500- 5,500, historical data from airlines and online travel agents shows.

The domestic airline official added that passenger have also accepted that higher ticket prices are here to stay because there is no drop-off in demand, which is only seen rising.

Travel websites have also reported an upward trend in airfares during the quarter with witnessing a 6 percent increase from September.

Another online travel operator, Ixigo, has reported a 44 percent rise in airfares on the Bengaluru-Kolkata route for travel between December 21 and 31.

In the same period, the New Delhi-Goa route witnessed a 40 percent rise and the New Delhi-Bengaluru route saw ticket prices increase by 15 percent.

Spot fares for tickets on the Delhi-Mumbai route have risen from Rs 5,500 in September and Rs 9,000 in May to Rs 15,000-20,000.

Similarly, ticket prices on the Mumbai-Bengaluru route currently cost around Rs 4,000-Rs 17,000 against Rs 2,000 in September.

Airfares on the Delhi-Bengaluru route have also risen from Rs 7,000 in September and Rs 10,000 in May to around Rs 15,000-35,000.

Passengers turn to the government 

Due to the rising airfares in the domestic market, 65 percent of passengers want the civil aviation ministry to reintroduce a cap on airfares, according to a survey carried out by LocalCircles.

The survey received 22,000 responses from consumers in 297 districts in the country. The participants were spread across Tier I and II towns and rural areas.

The question on re-introduction of fare caps received 12,193 responses and 65 percent said ‘yes’ to a query on re-introduction of caps. Another 50 percent said low-cost airlines were charging higher airfares than full-service counterparts.

The civil aviation ministry removed the caps on domestic fares from August 31, offering flexibility to airlines to levy fares. The caps had been introduced in May 2020 with the restoration of domestic flights after a two-month lockdown because of the pandemic.
Yaruqhullah Khan