Demand growth moderation, airline capacity addition keeping airfares in check | Business News

Average one-way airfares on 20 of the 32 routes have declined with the fall varying widely between 1 per cent and 32 per cent. As for the 12 routes that have seen higher fares, the rise is between 1 per cent and 2 per cent for five routes, and between 8 per cent and 27 per cent for the remaining seven, per the data from Ixigo.

Among the 32 routes, the highest drop was observed for the Chennai-Kolkata route with average one-way airfare down by 32 per cent year-on-year to Rs 5,688. On the other hand, the highest increase was on the Delhi-Jaipur route with the average fare higher by 27 per cent at Rs 3,273.

To be sure, airfares depend on the demand and supply dynamics on the individual route level, which could throw up exceptions to the general trend. For instance, there may be cases where demand outstrips seat supply significantly, leading to a jump in fares, even as the broader trend points to stable or lower fares.

The other key factor to consider is the advance booking period. While it is a general rule of the thumb to book flights as early as possible in order to pay less, there may be exceptions to this rule as well. In cases where demand is strong and load factors healthy, fares could be higher closer to the travel date. However, there may be cases where ticket prices fall substantially just before the travel date if the expected passenger load is weak. Air traffic disruptions leading to long delays and cancellations, including those related to weather, also tend to bump up spot or eleventh hour fares.

According to airline executives, there are clear indications that the supernormal rate of demand growth that the industry had witnessed over in 2022 and 2023 have started to normalise, even as major Indian carriers—IndiGo and Air India group airlines—continue to add capacity with multiple new aircraft being inducted each month. Aircraft groundings due to engine issues and supply chain woes have also started declining in the recent months, leading to more airline seats being available for sale.

Aviation turbine fuel (ATF) prices, too, have cooled off from higher levels seen last year. ATF usually accounts for 35 to 40 per cent of Indian airlines’ operational expenses. For instance, ATF price in Delhi for the current month—Rs 91,856.84 per kilolitre—is 13.5 per cent lower on a year-on-year basis.

In its September quarter earnings, the country’s largest airline IndiGo reported that its available seat kilometres (ASK)—a measure of its seat capacity—was higher by 8.2 per cent than July-September of last year. As of September 30 this year, IndiGo had a fleet of 410 aircraft, up from 334 planes as of September 30, 2023.

In the past 18 months or so, the Air India group has inducted 100 new aircraft, taking the combined fleet to around 300. Over the last year alone, group airlines have inducted a new aircraft on average every six days, and the trend is likely to continue for a few months, Air India’s chief executive officer Campbell Wilson said in a recent interaction with reporters.

Late October, IndiGo announced that it had started to see a reduction in the number of aircraft grounded due to engine issues, and expects to see a progressive decline in these numbers over the coming months.

IndiGo’s aircraft groundings had hit a peak of “mid-seventies” in the July-September quarter. It has now reduced to “high-sixties” and is expected to fall further to less than 60 by the end of this year, and then to “mid-forties” by the beginning of the next financial year, the airline’s chief financial officer Gaurav Negi said in an investor call on October 25.

On the demand scenario, IndiGo’s chief executive officer Pieter Elbers had told investors in that call: “…as experienced in the global markets we have also observed some normalisation in the demand in the last few months when compared to the very high base of last year”.

A senior official at another Indian airline concurred. “There was significant pent-up demand that was skewing the demand-supply equation last year. Also, don’t forget that Go First also went out of business last year, constraining supply to some extent. Now, demand growth is moderating to a more realistic level and carriers have been able to rapidly add capacity as well,” said the official, who did not wish to be identified.

High airfares had become a major pain point for flyers for much of 2023, leading to even the government monitoring the fares and advising airlines to keep ticket prices reasonable. Airfares in India are not regulated by the government and are market-driven.

Source: Ixigo