NEW DELHI: The Indian summer for domestic air travelers could be coming to an abrupt end midseason, with the highest jet fuel prices in about four years making flights uncomfortably expensive in the world’s fastest-expanding aviation market.
A tariff analysis of various domestic routes, done by yatra.com for ET, shows that fares during the first 15 days of May this year, as compared to the same period last year, have risen by up to 17%.
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The increase in fares has already affected demand, and load factors (a measure of total seats filled per flight) at Indian airlines for May have started showing a decline.
“Average airfares for the key routes have spiked since the beginning of May with an increase of over 15% compared to April, 2018, and by 10% versus May last year (increase has been up to 17%),” said Sharat Dhall, COO (B2C) at yatra.com.
“This is especially visible in the last-minute fares which have gone up very significantly. This increase can be attributed to the 6.3% hike in Aviation Turbine Fuel prices at the beginning of the month as well as the increased demand in the peak summer holiday season.”
According to the Indian Oil website, jet fuel prices in Delhi, have increased by 26.4% to Rs 65,340 per kilolitre in May, 2018. Prices have also increased by about 6.3% over April. Jet fuel constitutes up to 50% of the total cost of airline operations in India, primarily due to higher taxes on the energy source.
India’s domestic passenger growth, which has been the highest in the world, is set to be affected with the spike in fares. “Fares have increased, and demand is getting affected. Aviation is not a cost plus business (and increase in cost cannot be transferred to passengers due to competition).
The hike is visible more in last-minute fares (booked within seven days of travel date). This has led to a decline in demand. Loads during the first half of May are on a declining trend across airlines due to rising fares,” said a senior executive of an Indian airline, who did not want to be identified. Aviation industry analysts say that the profitability of Indian carriers would be hit.
“We see marginal increase in overall fares until end June but closer to departure fares may be higher than overall average,” said Kapil Kaul, CEO at CAPA South Asia, an aviation consultancy firm. “Given the capacity profile in FY19, we see no scope of fare increases in Q2. Fares in Q2 will see higher discounting than in previous years driven by large capacity inductions.”
He further said that profitability of airlines will be severely tested in Q2 FY19 due to the twin impact on costs and revenue. “I see a downward bias on full year profitability estimates at this stage,” he added. Indian airlines plan to induct over 900 aircraft in the coming years. During FY19, IndiGo plans to add 40 aircraft, Spice-Jet’s fleet induction begins from July this year.
Fares for one-way economy class travel. Figures in Indian Rupee