Weeks before the beginning of the festival season, airfares are likely to drop with the floor and cap on tariffs being taken away on August 31, according to industry experts and airline sources.
Earlier this month, the government said it would remove the fare caps it imposed on domestic airlines in 2020 during the pandemic. Airlines have been demanding for several months that these caps be removed .
According to a senior airline executive with a no-frills carrier, “there are two reasons why I see the airfares dropping before they touch peak again over the next few months. First, seasonally, the load factor in this quarter is usually lower. Second, airfares have been extremely high for the past few months, which, to a certain extent, have been dampening the demand. I see this regularising once the fare floor and cap will be eased next week”.
In July, the domestic air traffic dipped by 7.6 per cent, compared to June, according to the data provided by the Directorate General of Civil Aviation.
An analyst, too, said that “the market needs stimulation, the airfares have been extremely high for the past few months, this has dampened the demand. Before the festive period starts, the market needs this stimulation”.
However, there are players and analysts who believe that after a marginal dip, there will be a rise in prices right before the festival season. In India, the third quarter is usually the peak season for the travel, aviation and hospitality sectors. While a few festivals such as Raksha Bandhan, Eid and Ganesh Chaturthi boost marginal travel, most of the major festivals, including Navratri, Durja Puja, Diwali, are in the months of September, October and November.
“The Q3 of any fiscal year has always shown positive response in terms of demand. Average fares like always be on a higher side. Competition is almost like before as new carriers as still to settle their feet till they actually pose as a challenge to the legacy ones,” said an analyst.
Another major factor why some players believe that the airfares are likely to remain high is because of ATF prices. “Given the ATF is still high, and the market needs to recover lost monies for two years now, travellers may have to burn a hole in their pockets,” said one of the persons quoted ago.
The price of aviation turbine fuel (ATF) was reduced by 12 per cent on August 1, 2022. This is the second time in a fortnight that jet fuel prices have been cut amid softening of global crude oil rates. However, they are still extremely high.
“Pricing has a direct correlation with demand and supply. Operational cost is one of the factors but right now the impact is dependent on how fuel price stabilises in near term,” a senior official with a full service carrier said. Approximately 40 per cent of an airline’s total cost is fuel.