In a surprise move, India’s carriers have taken away all promotional fares from their inventory, and in addition hiked prices by at least a fourth, one month before the festive season. SpiceJet, India’s second-biggest budget carrier, late on Tuesday, raised prices by up to 25%. “The rise in our operating costs has been abrupt, serious and largely driven by the rapidly weakening rupee. About 75% of the total spending is either directly or indirectly influenced by the US dollar, which has appreciated by 25% in this year alone,” said a spokesperson for SpiceJet. He added the airline “is in no position to absorb the additional burden and we are compelled to put through the fare hikes to neutralise the impact of increase in costs.”
Most other airlines, including Jet Airways, IndiGo and Go Air, have followed suit. Air India hasn’t yet raised its fares, but is likely to soon implement a hike. “The increase of between 15% and 25% across sectors is very significant in the current economic environment, and early signs are that minor growth momentum that the air industry was seeing in July and August has been squashed. This increase has been forced upon the airlines on account of their rising input costs on account of the rupee falling, as well as the increase in the ATF,” said Sharat Dhall, president ofYatra.com. “If one carrier raises fares, we will have to match it. Also, it’s about time that we raised fares, since they were at record lows,” said an executive at a low fare carrier.
As a result, a Delhi-Mumbai one way spot fare is now upwards of . 9,000 on almost all airlines, up 23% over last year. Prices for tickets booked even for a month in advance are about 25% higher. A one way ticket between Mumbai and Bangalore costs between . 6,793 and . 10,087 depending on how long before the actual date of travel it’s booked.
“We were discussing a fare hike yesterday. We will likely implement them today,” said a senior executive at national carrier Air India.
The latest fare hike comes earlier than usual, as airlines typically raise fares during the festive season, which starts in October. The hike will further hit load factors of these carriers, which have already been struggling to filling up their aircraft as a slowdown in the economy saps demand for travel. But their input costs have been steadily on the rise. State-run oil refiners recently raised jet fuel prices by 6.9% with effect from September 1. Jet fuel accounts for the biggest chunk — more than 40% — of an airline’s input costs, and was until recently the major reason for their continuous losses.
The carriers have also been impacted by a historic fall in the rupee, which has further impacted their fuel costs, plane lease rentals and a chunk of their salary bill, which is paid to expatriate employees. The rupee has fallen about 19% against the dollar this year on fears about how India will fill the yawning gap in its current account. The airlines have, however, been unable to pass on the rise in costs, because of a major slowdown in air travel.
Number of domestic passengers increased below 1% in January-May to 25.9 million. There is unlikely to be a substantial increase in the numbers soon. Hit by low demand, India’s carriers have been selling way below cost, cutting fares to their lowest in two years in July and August. Sydney-based CAPA-Centre for Aviation said in a recent report that Indian carriers will in the current quarter post net losses of $400 million to $450 million. “The only advice to travellers for the festive season is to plan their travel well in advance and go ahead with their bookings right away, as it is unlikely that we will see any reduction in prices from here to the end of the year,” said Dhall. He, however, added that the latest fare hike will curb demand even further, especially in the month of September. “Demand or bookings may decline by up to 5%,” he added.
“What we have done is just gone back to levels of two months earlier. Even at this rate, considering almost 60% of our flights are booked a month in advance, we would have to fill 100% of our aircraft to make any money,” said an executive at a top budget carrier.
Most other airlines, including Jet Airways, IndiGo and Go Air, have followed suit. Air India hasn’t yet raised its fares, but is likely to soon implement a hike. “The increase of between 15% and 25% across sectors is very significant in the current economic environment, and early signs are that minor growth momentum that the air industry was seeing in July and August has been squashed. This increase has been forced upon the airlines on account of their rising input costs on account of the rupee falling, as well as the increase in the ATF,” said Sharat Dhall, president ofYatra.com. “If one carrier raises fares, we will have to match it. Also, it’s about time that we raised fares, since they were at record lows,” said an executive at a low fare carrier.
As a result, a Delhi-Mumbai one way spot fare is now upwards of . 9,000 on almost all airlines, up 23% over last year. Prices for tickets booked even for a month in advance are about 25% higher. A one way ticket between Mumbai and Bangalore costs between . 6,793 and . 10,087 depending on how long before the actual date of travel it’s booked.
“We were discussing a fare hike yesterday. We will likely implement them today,” said a senior executive at national carrier Air India.
The latest fare hike comes earlier than usual, as airlines typically raise fares during the festive season, which starts in October. The hike will further hit load factors of these carriers, which have already been struggling to filling up their aircraft as a slowdown in the economy saps demand for travel. But their input costs have been steadily on the rise. State-run oil refiners recently raised jet fuel prices by 6.9% with effect from September 1. Jet fuel accounts for the biggest chunk — more than 40% — of an airline’s input costs, and was until recently the major reason for their continuous losses.
The carriers have also been impacted by a historic fall in the rupee, which has further impacted their fuel costs, plane lease rentals and a chunk of their salary bill, which is paid to expatriate employees. The rupee has fallen about 19% against the dollar this year on fears about how India will fill the yawning gap in its current account. The airlines have, however, been unable to pass on the rise in costs, because of a major slowdown in air travel.
Number of domestic passengers increased below 1% in January-May to 25.9 million. There is unlikely to be a substantial increase in the numbers soon. Hit by low demand, India’s carriers have been selling way below cost, cutting fares to their lowest in two years in July and August. Sydney-based CAPA-Centre for Aviation said in a recent report that Indian carriers will in the current quarter post net losses of $400 million to $450 million. “The only advice to travellers for the festive season is to plan their travel well in advance and go ahead with their bookings right away, as it is unlikely that we will see any reduction in prices from here to the end of the year,” said Dhall. He, however, added that the latest fare hike will curb demand even further, especially in the month of September. “Demand or bookings may decline by up to 5%,” he added.
“What we have done is just gone back to levels of two months earlier. Even at this rate, considering almost 60% of our flights are booked a month in advance, we would have to fill 100% of our aircraft to make any money,” said an executive at a top budget carrier.
Source: The Economics Times
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