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Cheaper jet fuel, offers galore: Is this the start of domestic airfares flying down?

According to market experts and industry participants, ticket prices in India are most likely not going to fall due to high fuel costs, the depreciating rupee, and the struggling balance sheet of airlines.

August 06, 2022 / 08:58 AM IST
(Representative image: AP)

(Representative image: AP)

Jet fuel or aviation turbine prices on August 1 were cut by 12 percent, reflecting a fall in international oil prices across India and just a day after the country's largest airline IndiGo announced a "sweet 16" offer on all domestic routes.

As part of the offer between August 3 to August 5, customers will be able to book flight tickets with rates starting as low as Rs 1,616 for tickets booked between August 18, 2022, and July 16, 2023.

The latest offers by IndiGo have come just a couple of days after its earlier scheme the  ‘Let’s Sale with IndiGo’ offer ended on July 31 when it was offering tickets starting Rs 1,499, which the airline had launched in the last week of July.

Expectations are that most domestic airlines in India will also soon come out with offers to match the offer by IndiGo.

Even last month, the offers by IndiGo launched in the last week of July were matched by other airlines in India.

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SpiceJet had launched the ‘Season Sale’ where it was offering tickets starting at Rs 1,498, GoFirst had its 'Rock Bottom Sale' where it was offering tickets for Rs 1,799, and AirAsia had brought its 'Pay Day Sale' where it was offering tickets for Rs 1,499.

So does this mean that domestic airfares in India, which have risen nearly 30 percent when compared to last year are on their way down?

According to market experts and industry participants, ticket prices in India are most likely not going to fall back to pre-COVID levels due to still high fuel costs, the depreciating rupee, and the struggling balance sheet of airlines.

Even IndiGo which posted its highest ever revenue from operations of Rs 12,855.2 crore in April-June posted a loss of Rs 1,064.26 crore for the quarter.

"Fuel prices have shown some are showing signs of softening, but are still at a high level compared to the pre-pandemic period and until fuel prices fall back further ticket fares will not fall much," a senior official from low-cost airline GoFirst told Moneycontrol. He asked not to be identified.

Another official from a domestic airline in India said that the market leader, IndiGo, in this case, will have the power to determine ticket prices till fuel prices remain high or will have to risk losing market share.

Similarly, IndiGo's chief executive officer Ronojoy Dutta had said that domestic airlines will find it difficult to match the prices offered by IndiGo as their operational efficiencies are very high.

In a post-earning conference call earlier this week, Dutta had said that ticket prices in India were abnormally low before the pandemic and have stabilised a lot in the past year.

He had added that in the last six months the crack spread, which is the difference between the price of crude and the price of ATF or aviation turbine fuel, has increased significantly.

Dutta also said that while there has been a small loss in passenger load factors due to higher ticket prices, he expects passengers to return as they get used to the new fares.

While newcomer Akasa Air has offered lower fares than IndiGo on its inaugural routes, the airline is offering Mumbai-Ahmedabad flight tickets for as low as Rs 3,000 in August, which is the lowest on this route.

The capacity Akasa Air deploys is very small to affect IndiGo's pricing power.

Similarly,  Jet Airways, which is expected to start operations from next month will also have a limited capacity to impact the overall pricing landscape in India.

Market experts also said that IndiGo is currently launching offers on tickets to ensure that its passenger load factor does not drop significantly in July-September, which is relatively a weaker seasonal quarter for travel in India.

"IndiGo is only trying to gain market share and gain its lost passenger load factor by offering discounts on tickets," Lokesh Sharma, a senior aviation and defense analyst said.

Dutta himself had said that IndiGo has lost close to 8 percent in its passenger load factor (PLF) when compared to pre-COVID levels and the airline's major focus going forward will be to recover the lost PLF.

Last month, officials from domestic airlines in India had also said that prices of domestic tickets are likely to rise by 2-4 percent every month if the ATF prices in India continue to rise, as has been the trend for the last year.

Officials had also said that while airlines might not increase prices all at once, partial increments of Rs 300-600 every month are likely to pass on the cost of rising fuel prices.

Compared to the same period last year, ATF prices have risen more than threefold from Rs 40,783 per kilolitre in January 2021 to Rs 1,21,915.57 per kl in Delhi on August 1, 2022, data from the websites of oil marketing companies shows.

Credit rating agency ICRA Ltd expects the domestic aviation industry to report a net loss of about Rs 25,000-26,000 crore during 2021-22 amid a sharp rise in crude oil prices and a recovery hindered by the recent wave of the pandemic. The agency expects the industry to require additional funding in the range of Rs 20,000-22,000 crore over 2021-22 to 2023-24.
Yaruqhullah Khan
first published: Aug 5, 2022 06:23 pm
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