Business Hour

What makes airlines give you cheap flight tickets despite increased passenger traffic ?

The passenger traffic for airlines has increased by about 17 per cent in the past year. However, an increased competition along with a rise in the capacity by 15 per cent, is the reason why there has been no increase in the airline fares. The overall capacity in seat kilometers stands at 130 billion kilometers.

Commenting on the same, Rahul Bhatia, interim CEO, Interglobe Avaiation, commented, “ Clearly with industry load factors in the high 80s or 90s, the industry is turning away passenger demand at current fare levels but we have no choice but to keep our fares competitive.”

As a result of fares remaining flat or even going down on a few routes, the yield for many airlines have been low, and are thus facing pressure, said Balu Ramachandran, Head (Distribution), Cleartrip. There was a 10 per cent decrease in the average spot fare in three months to June while the second quarter witnessed a decrease by 20 per cent year-on-year.

Adding to the misery of the airlines is the 30 per cent rise in the fuel costs, which is solely responsible for 40 per cent of an airline’s running costs. Alongside, the decrease in rupee against dollar has added to the problems of airlines. Lease, rentals and maintenance have also gone up.

Amar Dubey, Partner, KPMG also expressed, “India is an extremely price-sensitive market and the perception of ‘time is money’ is growing but we have a long way to go. A `500 increase in airfare may switch a budget-conscious family of four to the train or a hired cab. Airlines cannot risk flying half-empty planes during the lean July-September quarter, and hence, the abnormally low fares.”

The aviation market, which is being closely monitored and analyzed, has not been able to cope up with the losses incurred in the last 2 years, let alone the flat lining of the prices that has taken over the entire industry. The increased input costs also stand at the bottom, making it difficult to find profit between the lines.

The need for airlines has increased, and yet the pricing stands low, even during the high demand season. Though analysts believe that airlines should have the scope to increase the prices, the numbers say something else. Given the current situation, what the future holds for the aviation market is still to come to light.

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