The Hindu Business Line : Airlines look to trim capacity; fares may go up

Mumbai/New Delhi, June 17 Domestic air fares could rise by as much as 10-12 per cent in the short term with airlines looking to cut capacity to offset their losses due to the current low realisation and rising aviation turbine fuel (ATF) costs.

The President, Travel Agents Association of India, Mr C.V. Prasad, told Business Line, the base fare is likely to be fixed at a minimum level which would be almost double of what it is currently. “The base fare of Rs 200 will no more be there, instead they are likely to be fixed between Rs 500 and Rs 1,000 and with the fuel surcharge etc there is likely to be an increase of 10 to 12 per cent in the fares across the board."

He added the airlines till last year had a passenger capacity utilisation of 73 per cent, which fell to the current levels of 63 per cent after the hike in fuel prices. “Now, about 10 to 15 per cent of the capacity is likely to be withdrawn enabling them to achieve load factors of about 80 per cent.”

Sources indicated that airlines are likely to reduce capacity on their loss-making routes to step up yields. These routes, mostly short haul-flights, would be Chennai-Bangalore, Hyderabad-Bangalore and Jaipur-Ahmedabad. A senior official of a low-cost carrier said this would help increase the load factors by 2-3 per cent.

However, the Chairman of Federation of Indian Airlines, Mr Vijay Mallya, is of the opinion that it is not just the short-haul routes but capacity that needs to be trimmed on key routes. “All airlines will have to look at cutting back capacity by upto 30 per cent of their flights even on busy routes like Mumbai and Delhi if Government does not provide any relief .”

Spicejet, the Delhi-based low-cost carrier, announced last week that it would be reducing its flights from 117 per day to 100 per day. The average ticket utilisation will go up by about Rs 70 per passenger with this decision, said Mr Siddhantha Sharma, Executive Chairman. Air India’s spokesperson also said the national carrier is “taking a hard look at its flight schedule and will take a call depending on the economic viability of the move.” He indicated that cutting down on flights could be an option; however, no decision has been reached so far. “Whatever the decision is it will apply to both international and domestic routes,” he added. On fares, he said that they are “market driven”.

Meanwhile, Jet Airways said on Monday that it would be putting international expansions on hold until the end of next year because of high oil prices. Last week, the carrier also said its low-cost arm Jetlite will be taking over on thinner routes.

According to the Civil Aviation Ministry, ATF prices have risen from Rs 21 per litre in 2004 to Rs 70 per litre currently, while the average fare declined from Rs 6,050 in 2004 to Rs 3,950 during 2007.

A comparison between average air fares vis-À-vis ATF prices shows that in January 2006 Air India’s fare was Rs 6,068 against the fuel price of Rs 43,600 a kilolitre. In May 2008, the fare has moved up to just Rs 7,708 against ATF price of Rs 61,150.