Competition to bring down airfares in the short term

Debabrata Das Mumbai | Updated on May 26, 2011 Published on May 26, 2011

With low air fares resulting in higher seat factors (occupancy of airplanes), cheaper tickets could be the mantra for airlines hunting for market share for the next few months.

“Irrationally, low air fares are something we would have to live with. I think some airlines will continue with low air fares to capture market share,” said Mr Sudheer Raghavan, Chief Operating Officer, Jet Airways Ltd. Jet Airways has a 25.4 per cent market share and defying trends, it hiked ticket prices by 20 per cent in May.

Analysts add that the low fares would continue for a few months but it won't be sustainable in the long term.

“Air India has come out with some special fares aiming for market share and it is working well for them. The important thing is how many seats per aircraft are available with these special fares. But no matter how successful they are, even Air India will not be able to maintain such low fares for more than a few months,” said Mr Vishwas Udgirkar, Senior Director, Deloitte India.

Long-term trend

But in the long term airlines are reluctant to drop fares. “Even the so-called low cost carriers will shy away from dropping fares as their fleet gets old. We are seeing trends of people reluctant to drop fares unless necessary,” said Mr Raghavan.

“The fare structure has now become very complex. There are different fares for seats on the same flight. The number of seats therefore with low fares might well decline as airlines go for better yields in the long term,” said an aviation analyst.

Demand projections

Industry observers see air travel demand to be robust in the coming months. According to analysts, average load factors of above 70 per cent are likely to be achieved by the industry.

“Lower fares and new routes will push up air travel demand in the coming months. This is a good time for airlines to get high seat factors. But yields will depend upon the fares. Jet Airways and Kingfisher with higher fares could get better yields,” said an aviation industry official.

Kingfisher Airlines recently said, “Given the demand/supply situation, airlines have been able to partially offset the fuel price hike with fuel surcharge in the ticket prices. Yields are expected to remain stable going forward.”

The airline added that capacity addition in the industry will remain lower than demand, resulting in an increase in seat factors during the fiscal.

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Published on May 26, 2011
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