New Delhi: Airlines have raised ticket prices the most on routes that are least serviced or are short-haul over the last one year, prompting many passengers to choose trains over flights. This could be a source of concern to airlines if flight occupancy continues to be low in the festive season between now and January.
India’s airlines have been reporting negative month-on-month growth for the past three months with flight departures being reduced and passengers of two flights clubbed together to counter low occupancy levels.
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Scheduled domestic airlines carried 9.44 million passengers in June-August, an 11.2% decline from 10.63 million in the same period last year, according to the aviation regulator Directorate General of Civil Aviation (DGCA). Figures for September are not out yet.
Partly the fare rise has been due to high fuel prices, which have been passed on to customers as fuel surcharge. And unlike last year, the consolidation in the airline industry has also seen a near-complete absence of ultra-cheap or tickets at throwaway prices.
According to data compiled by brokerage Citi Investment Research, an Ahemdabad-Delhi return ticket that used to cost on average Rs5,059 in July 2007 was Rs11,117 in August 2008—a jump of 120%—while on longer routes, such as Chennai-Delhi, ticket prices jumped the least by nearly 30%.
The fares, monitored by Citi Investment Research between 15 city pairs in the country, were averaged out for four airlines. These included SpiceJet Ltd, Jet Airways (India) Ltd, National Aviation Co. of India Ltd’s Air India and Simplifly Deccan, recently renamed Kingfisher Red by Kingfisher Airlines Ltd, which agreed to buy it last year.
A similar comparison done between January and September this year for airfares and second-class air-conditioned railway fares over a dozen sectors shows that the price difference has widened further.
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Consequently, the difference between a low-cost airline fare between Bangalore and Delhi and second-class air-conditioned train ticket increased from Rs2,929 in January to Rs3,931 in May and Rs5,367 in September, according to the same report.
“Our ticket sales in the air-conditioned compartment have increased on account of the hike in airline fares,” said an Indian Railways board official, who did not wished to he named. This official said the growth has been the highest in the southern sector, especially for Southern Railways.
What is worrying for airlines is that bookings for the coming months are not looking as bright as the airlines would have expected. The festive season starting this month and running up to January is considered the peak earner.
“Obviously the airlines had an average load of 72% (in October last year). I don’t expect those kind of numbers, (it will be) more mid-60s kind of numbers,” said Samyukth Sridharan, chief commercial officer of SpiceJet, referring to the flights bookings over the coming months.
Sridharan partly blamed the hype over increased airfares in the past few months for influencing travellers to choose railways over flights. “Anybody who would have been going for Diwali (break) would have already made train bookings though we did not increase fares last month,” he said.
The airline is now thinking of a possible reduction in airfares by 5-10% if oil prices continue their downward trend. “A month later we may sit back and say what can you do now with the fares,” he said.
However, Kapil Kaul, CEO (Indian subcontinent and Middle East), Centre for Asia Pacific Aviation (Capa), said low-fare carriers had shifted to a “yield driven” business model, which means more fare per passenger rather than the typical low-cost carrier model that focuses on “maximization of revenue on each flight,” as one of the key reasons for reduced demand.
Capa estimates the price difference between full-service carriers and low-cost carriers has declined by more than Rs1,000 to Rs500-700. This has tilted passengers in favour of full-service airlines with prime departure slots that offer hot meals and freebies such as in-flight entertainment systems.
The average of number of people flying per flight has indeed dropped drastically. While low-fare carrier SpiceJet’s flights were flying with an average occupancy of 62.3% in September last year, the figure in September this year went down to “early 50s”.
The load factors for rival low-cost carrier IndiGo, too, slipped from 68% last September to about “55-60%”, according to IndiGo’s president Aditya Ghosh. Kingfisher Red flew its aircraft 39% full in August, the lowest for any carrier in that month, compared with 70% a year earlier when it was known as Deccan, according to the DGCA.
K.P. Narayana Kumar contributed to the story.