Home / News / India /  High airfares take a toll on domestic air traffic

NEW DELHI : Domestic air passenger traffic declined 4.58% from 2,317,915 during 1 March-7 March to 2,211,838 in the week ended 7 April, indicating that high airfares, among other factors, may have affected demand, according to aviation analysis website NetworkThoughts.

Air passenger traffic, which witnessed a V-shaped recovery in recent months, had declined only during outbreaks of fresh waves of the covid-19 pandemic.

The additional 2% flights deployed by airlines during the period, also put pressure on airlines’ load factors, showed data from NetworkThoughts.

“Traffic has not moved upwards as expected even after restrictions have been lifted. The reason would be a mix of examination season and high ticket costs," said Ameya Joshi, an independent aviation analyst and the founder of NetworkThoughts.

“Coupled with it are a few airfields undergoing upgrades, thus limiting the operating hours and leading to reduced air traffic movements and passengers," Joshi pointed out. Airfares have risen by more than 60% year-on-year across popular routes primarily because of a rise in the price of aviation turbine fuel (ATF), according to data from online travel portal ixigo.

“While there has been an increase in search queries for travel as a result of pent-up demand, bookings are still not growing in line with the searches because of high airfares," according to Aloke Bajpai, co-founder and group chief executive officer, ixigo.

However, corporate and business travel is picking up, Bajpai said. “With most organizations implementing hybrid work models and virtual events switching back to the physical mode, the demand for work-related travel is steadily picking up," he said.

ATF price, which is updated every fortnight, was at a record high on 1 April because of rising crude oil price. ATF price increased 20.74% on 1 April from a month ago to 1,12,924.83 per kiloliter in Delhi, while in Kolkata, Mumbai, and Chennai it was 1,17,353.71, 1,11,690.61, and 116,583.71 per kiloliter, respectively. ATF accounts for 30-40% of an airline’s cost structure in India and price hikes pose a risk of crimping the profit margins of airlines, which have been reeling under huge losses over the last few quarters because of the pandemic.

Domestic air passenger traffic is likely to be around 84 million during FY22, about 59% higher than the previous year and 40% lower than pre-covid-levels, rating agency Icra Ltd said in a report released earlier this week.

“The ATF prices have surged by about 93% on a YoY basis in April 2022, given the elevated crude oil prices, due to the geo-political issues arising from the Russian invasion of Ukraine," Icra report said.

“Elevated ATF prices aggravated by geo-political issues will remain a near-term challenge for the industry and will be a key determinant of profitability for the industry," it added.

Meanwhile, airlines have little option but to pass on the rising costs to customers. “It is a delicate balance between passing on the costs to customers and maintaining demand. However, most airlines are not in a position to absorb the high costs that are a result of rising oil prices," a senior airline official said, requesting anonymity.

Last month, Ronojoy Dutta, chief executive of India’s largest airline IndiGo, had urged the central government to bring ATF under goods and service tax (GST) for the benefit of airlines and customers. Rationalizing taxes will result in high growth for the sector, creating a multiplier effect throughout the economy, promoting trade, tourism, and job creation, Dutta had contended.

Indian airlines may post a record loss of more than 20,000 crore in FY22, 44% higher than the loss reported in the previous year, according to a report by rating agency Crisil Ltd. It expects domestic air traffic to recover to pre-pandemic levels by the fourth quarter of 2022-23.

Spokespersons of major airlines did not comment on the high airfares and its impact on demand.

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