Airlines cut festive fares, risk margins
Airfares for the upcoming Dussehra season and thereafter are at a five-year low, meaning a bonanza for flyers.
“Yields will be much weaker than last year on most routes due to excessive capacity addition, and slowing economy/less willingness to spend money,” said a senior executive at a leading Indian carrier. He didn’t want to be named.
He added that yields are the weakest “since at least 2013” and that revenue per average seat kilometre (RASK) would be down by as much as a fifth.
RASK is calculated by dividing total operating income by the number of available seat kilometres or ASKs. The cost item equivalent is CASK. ASKs are calculated by multiplying the available seats for a given plane by the number of miles that plane will fly on a given flight.
A spokesperson for India’s biggest online travel portal MakeMyTrip said advance purchase fares for the Dussehra weekend are down 15% as compared to 2017. This had expectedly led to a spurt in ticket purchases.
“Bookings across cities demonstrate vibrancy during the Navratri season. Bengaluru, Ahmedabad, Mumbai and Hyderabad have seen the highest growth in bookings in the range of 12-14%, while Kolkata remained the number one destination in terms of absolute bookings (because of Durga Puja). Bookings for Pune and Delhi remain at healthy levels,” said Balu Ramachandran, head of the airline business at Cleartrip.
Ramachandran added that the rise in volumes and some spurt in fares might not be enough to cover rising costs and could hurt airlines’ margins.
Primary among the reasons is a situation of overcapacity, said industry experts. All of last year, India’s airline industry added 88 planes to its collective fleet. This year, airlines added 46 planes between April and August and are slated to add 90 more by March — higher capacity during half of this year than all of last year.
Naturally, the prices have risen where capacity hasn’t increased much.
“The busiest Delhi-Mumbai route where capacity expansion is constrained continues to see a surge in prices,” said Sharat Dhall, chief operating officer at Yatra.com.
“We have seen some of the sectors already showing higher fares. These will rise further as we go closer to Diwali. I am, however, not ruling out that none of us will be able to pass on the entire spike in input costs to passengers,” said a senior executive at a top Indian carrier, also on the condition of anonymity.
Economic Times Business News App for the Latest News in Business, Market & More.