When will sky-high airfares return to Earth?

A business daily reported on Sunday that spot airfares on five of India's six busiest routes had jumped by up to three times in the past month. It said that on India’s busiest domestic route, Delhi-Mumbai, the average spot airfare on June 1 was ₹18,654, according to data from Ixigo. On May 1, two days before Go First's exit, the average spot airfare on this route was ₹6,125.

Though the summer months are traditionally considered peak season for flying and fares are normally higher than in other months, the spikes this year have been markedly larger. There are several reasons for this.

For starters, Go First, the third largest domestic airline, halted operations on May 3. This meant that almost 10% of capacity for the summer schedule was no longer available. The airline said troubles with Pratt & Whitney (P&W) engines in 25 of its aircraft forced it to halt operations. P&W engines have also affected a tiny number of IndiGo aircraft, causing an even bigger gap between demand and supply. Analysts estimate that P&W engine troubles have caused at least 1% of IndiGo’s more than 350 aircraft to be grounded.

Meanwhile, Air India – which also includes Vistara, Air Asia and AIX Connect (which has very few domestic flights) – simultaneously started rationalising its routes. This meant that domestic flights offered separately by Vistara, Air India and AirAsia on some routes were removed. This exacerbated the supply-demand mismatch, leading to higher airfares.

What’s further complicating the issue for flyers is that Indian companies, including airlines, have started reporting record profits. IndiGo reported a record profit of ₹990 crore for the fourth quarter of FY23, Reliance Industries reported a profit of ₹66,702 crore in FY23, an increase of 9.8% over the previous fiscal, and SBI reported a net profit of ₹55,648 crore, a 57.3% increase over ₹35,374 crore in FY22.

With business booming after covid, Indian companies are once again allowing their executives to travel by air rather than hold virtual meetings, further increasing demand for seats.

Previously, some of the increased demand during summer was absorbed by international travel but after covid, foreign missions in India are taking longer to issue tourist visas. This has forced flyers to change their plans and travel within India.

According to the numbers released by the Directorate General of Civil Aviation, Indian airlines carried around 13.2 million passengers in May, surpassing the previous record of 13.02 million, set in December 2019. Domestic air traffic in May was also 15% higher than in the year-ago period and 2% higher than in April.

Many have said what is happening in India is not an aberration as airlines across the world have faced problems with P&W engines. On May 4 Bloomberg reported that Lufthansa Group temporarily grounded some of its Swiss subsidiary's Airbus A220s at Zurich airport due to issues with P&W engines. Air Tanzania had to cancel flights last year due to issues with P&W engines, while US low-cost carrier Spirit Airlines faced similar problems with these engines in February and said its unit costs and profitability were being negatively affected.

Domestic airfares are expected to remain high for another six to seven months, or until airlines are able to induct more aircraft and sort out the issues with P&W engines. For instance, Air India is to receive 25 new Boeing 737-800 aircraft and six Airbus A-350-900s in the second half of the year as a part of its huge 470 aircraft order. The Boeing 737-800s will most probably be used for flights within India while the Airbus A350s will be used for international flights. IndiGo and Akasa are also set to receive more aircraft and increase supply in the domestic aviation market.