Super Sunday for Indian aviation

The good part about these numbers is that they are not a one-off wonder. There were 2.09 million domestic air passengers in the first seven days of November. That was the highest since the first seven days of March this year, when 1.81 million passengers took to the air.

Advantage airports?

While the government had doled out indirect benefits to the airline sector in the wake of Covid-19, airports did not get any benefits. Now, they stand to get a bonanza. Both Mumbai and New Delhi airports are operating all their terminals, while at other airports across the country, congestion is being reported at peak times.

With the return of passengers, airports stand to gain on two fronts. Increased traffic leads to more flights and revenue in terms of passenger service fee, landing and other charges from airlines.

The other and fairly important benefit is non-aero revenue. Stores at airports are open again and the food courts are buzzing again. With in-flight meals still restricted, passengers tend to fill themselves up before a flight or order takeaways. Airports get a share of the revenue from retail sales, including food and beverages, and increased footfalls add up to an airport’s revenue.

Airlines benefit

With passenger numbers at an all-time high since flights resumed in May last year, airlines are seeing fuller aircraft. Unfortunately, with the restrictions on in-flight meals, they cannot avail of the full potential of ancillary revenue. Yet, the lower bracket for fares means that airlines are selling more seats at fares that were earlier hard to command!

This led to IndiGo improving its RASK (revenue per available seat-km), although total revenue from operations remains lower than before.

With three airlines looking to raise as much as Rs 4,000 crore in the short to medium term, the current spurt in traffic will instil some confidence among investors.

Air fares

Indian aviation has been characterised by a floor price and a ceiling for air fares since May 2020. Over the past few months, the regulations have evolved and there has been some discipline and predictability.

While earlier the caps were announced with an end date, this was subsequently changed to a rolling 30-day period, which was further trimmed to a rolling 15-day period.

Airlines have to adhere to the fare caps for the next 15 days, beyond which they are free to price their tickets at will. However, airlines have been holding on to the fare levels for up to 30 days.

The decision not to drop fares for 30 days from departure is a good revenue management practice, which was seldom followed in India. This helps airlines and passengers get into a discipline for booking as well as fare management, with fares going up closer to departure day.

In the past, deep discounting at the last minute to shore up the load factor and garner cash had led to passengers feeling cheated for booking their tickets in advance as well as airlines not meeting their own revenue goals.

With aviation turbine fuel at a high, the current fare bands will help airlines sustain over the worst times and the return of passenger growth will go down well on the revenue side.

Yet, there remains a gap between what an airline’s earnings and its spending. While airlines sustained the two waves of Covid, one doesn’t know if there will be a third wave.

In the absence of another wave, business travel looks set to resume in the next few months. If Covid cases don’t rise after Diwali, it will instil further confidence among passengers to travel for Christmas and the New Year.