Airfares likely to taper off from July due to capacity addition, slight fall in demand

Airfares likely to taper off from July due to capacity addition, slight fall in demand

New aviation minister Ram Mohan Naidu's first comment after taking charge of the Ministry of Civil Aviation was to "make air travel more accessible by tackling the issue of rising fares". He will no doubt be pleased that prices for flight tickets are set to trend downwards, falling 5-10 percent from current levels over the next two to three months.

Airfares on major domestic routes in India are likely to see some easing off in the next few months, as airlines take delivery of nearly 10 aircraft every month to bolster their fleets and demand for travel is expected to fall on seasonal factors, industry experts and participants told Moneycontrol.

There could be a relief in the high air fares especially on domestic routes as new capacity gets added, said Prahlad Krishnamurthi, chief business officer, Cleartrip, told Moneycontrol.

Some relief

While adding seats in the longer run will definitely aid in lowering airfares from the highs seen in April, May and June, the more immediate catalyst will be the expected seasonal fall in demand.

"We have seen forward booking take a dip for July and August when compared to May and June, which was clearly expected," a senior executive from IndiGo, the country's largest airline by passengers carried, told Moneycontrol.

He added that IndiGo has already announced a sale on both domestic and international flights to help boost forward bookings for July and August.

Similarly, Vistara, part of the Tata Group's stable of airlines, last week announced a sale offering one-way domestic fares starting at Rs 1,999,  while Air India Express, another Tata subsidiary, advertised fares starting from Rs 1,177, and parent airline Air India launched discounted fares with fares beginning from Rs 2,449 in June.

"The Indian market has normalised the price hikes seen after the pandemic on domestic routes, and going forward prices are likely to remain rangebound and may even dip as competitive intensity increases," a senior Air India executive said.

He added that as domestic airlines look to grab a bigger chunk of the domestic air passenger market share, prices may see a temporary fall.

Rise in airfares

However, so far till June, airfares have risen significantly, according to data online travel aggregators shared with Moneycontrol.

Cleartrip data noted that out of the nine popular routes, seven recorded a spike in airfares from the first half of May, including Delhi-Bengaluru with a 17 percent increase in fares and Delhi-Mumbai, the busiest corridor, at 24 percent.

Similarly, data from Thomas Cook showed that there has been a significant increase in airfares in the second half of May this year as compared to March for its top routes in India.

Prices have surged in a wide range of 5-13 percent for flights between Srinagar and Mumbai and between Delhi and Bengaluru; 10-15 percent for Leh-Mumbai and Leh-Delhi flights; 7 percent for the Goa-Delhi route; and anywhere between 9 and 25 percent for flights between Bagdogra and Mumbai, Delhi and Bengaluru, data from Thomas Cook showed.

"We have witnessed an increase in airfares during May as the period being peak travel season for Indian travellers across segments for the summer holidays," Indiver Rastogi, president and group head, global business travel, Thomas Cook (India) and SOTC Travel, told Moneycontrol.

"Overall, in comparison to last year, we have seen an increase in airfares of approximately 15 percent across these routes," Rastogi said.

According to EaseMyTrip, this year, airfares have surged significantly by around 20 percent. Between March 15-30 and May 15-30, 2024, airfares on the 10 most popular routes in India saw notable increases.

The Bangalore-Hyderabad route experienced a modest 2.5 percent rise, while the Mumbai-Bangalore route saw a 7.6 percent increase. The Mumbai-Goa route had a significant 25 percent hike, and the Delhi-Ahmedabad route the highest surge of 41.6 percent, according to EaseMyTrip data.

"Other significant increases included Delhi-Bangalore (18.1 percent), Delhi-Mumbai (11.7 percent), and Delhi-Srinagar (32.6 percent). Overall, airfares increased across all these major routes, reflecting a broad trend of rising travel costs. On average, travellers will need to spend 5-30 percent more for flights this summer as airlines face challenges due to capacity declines and operational inefficiencies,” Nishant Pitti, CEO and co-founder, EaseMyTrip, told Moneycontrol.

Capacity addition

Air India, IndiGo and Akasa Air, the latest entrant to Indian aviation, are all adding on average 10 aircraft to their fleet collectively every month, with IndiGo and Air India (along with its subsidiaries) adding a new aircraft every week and Akasa Air adding an aircraft to its fleet every 20 days.

The aircraft addition will not only help domestic airlines add more capacity to serve customers but will improve operational efficiencies and reduce fuel costs.

Krishnamurthi told Moneycontrol that the domestic air industry is currently operating in a capacity-constrained environment, yet demand remains robust.

"Load factors and fares are high due to limited capacity expansion, with domestic fares up 10 percent year-on-year. But we have not seen a dip in the travel sentiment due to fares. The demand remains robust for both domestic and international. There could be a relief in the high air fares especially in domestic as new capacity gets added," Krishnamurthi said.

Similarly, Aloke Bajpai, chairman, managing director and group chief executive officer of travel platform Ixigo, told Moneycontrol that the simmering airfares will stabilise and cool off at some point with capacity addition.

"If you think from where the next 50 million new flyers are going to come from, then a lot of them will be train passengers travelling in the second and third AC classes. A lower airfare will lead to a greater shift in passengers from trains to flights. Because we are a market where only 4 percent of the people fly, who take multiple trips—that's how we get 150 million passengers in a year. Compared to most other economies, we are still under-penetrated on the air side. Ixigo needs to ride on that and tap into the next billion users," Bajpai said.

Seasonal demand fall

India is one of the world's fastest growing civil aviation markets and on average, 4.5 lakh passengers travel on domestic flights daily.

However, seasonally, India experiences a dip in domestic air traffic between April-June and July-September. The July-September stretch is considered the weakest quarter for domestic airlines. According to Directorate General of Civil Aviation data, air traffic in India usually falls 5-10 percent in the July-September quarter over the April-June quarter.

The fall in air traffic is usually due to the end of summer vacations, heat waves across parts of the country and the onset of monsoon in other states.

Airfares also seasonally fall in July-September as domestic airlines compete to keep passenger load factors high to maintain better operational efficiencies.