IATA data shows that Indian carriers struggled to increase fares despite an increase in passenger traffic. The data shows that the domestic airfares have remained at or below 2015 levels, and have been unable to keep up with inflation and jet fuel prices. This is despite an increase in the number of flyers by more than 62 percent since 2015.
While prices increased dramatically in 2023, airlines claim that normalcy returned when travel resumed in 2022, after two years without COVID.
“I believe that there has been a correction in the air fares. But I don’t believe it’s anywhere near what the perception may be. If prices haven’t kept up with inflation then airlines don’t even cover their operating costs, as general inflation doesn’t factor in high fuel inflation,” Director General IATA told Willie Walsh during an interview.
How is that possible? The airline industry is always in a state of competition. If prices are high, another carrier will jump into the fray, sensing an opportunity. Experts say that the consolidation of the Indian aviation industry, which has seen three airlines close in the past decade, and multiple mergers, have not benefited the industry.
In just nine months, the capacity lost by Jet Airways’ closure was recovered. IndiGo Air India and Akasa added 90 planes after Go First went bankrupt with 54 aircraft in 2023.
Airline executives stated that the recent market consolidation, which reduced the market into an effective duopoly, with IndiGo carrying 9 out of every 10 domestic flyers won’t change the scenario.
Airlines are forced to find new routes because of the influx of new aircraft. They find that even a difference in price of Rs 200 can make a passenger choose a train instead of a flight.
Walsh said that “wherever we have seen consolidation or the creation of large airlines, it has been very beneficial for consumers as they can now get cheaper fares because airlines are able to spread out their fixed overheads across a larger operation.”
IndiGo’s executive said that, on newer routes where rail passengers are converted to airline customers, price stimuli is necessary.
Air India CEO Campbell Wilson stated that due to the competitive dynamics in the aviation business, ticket prices will remain affordable for customers as we all need to fill our planes.
CAPA, an aviation research firm, said that profitability for domestic routes would be harder to achieve once the supply side constraint was removed. This is especially true if SpiceJet could benefit from capitalisation.
Similar to regional international, profitability is also going to be affected by the deployment of over 250 aircraft by Indian carriers over the next five-year period.
India, one of the fastest-growing aviation markets in the world, was the focus of the largest gathering ever held by global airline CEOs and aircraft lease companies, which took place in Dubai last weekend. Both domestic and international air travel are surging. According to government statistics, the domestic aviation market in India will double to 300 millions passengers from a previous record of 152million in 2023.
CAPA said that, while there’s a lull at the moment, capacity inductions by big players such as IndiGo or Air India are likely to be three-times GDP growth. This will undo all of the consolidation benefits.
IndiGo, the market leader with over 60% of the domestic market, reported a loss in July-September. This was their worst session since march 2022 because they failed to raise prices enough to cover costs that increased by more than 16percent. Pieter Elbers, CEO of IndiGo, said that consolidation would increase competition and airlines would have to focus on controlling costs to make money.
The Indian market is one the most price sensitive markets on the planet. The market will remain competitive.
Elbers stated:
“Both airlines must deal with their shareholders to ensure that their prices are in line with the costs they incur.”
