Long before the current surge in airfares, New Delhi-based Supreme Court lawyer Sameer Jain found all flights on the Delhi-Dehradun sector chock-full when he was looking for a ticket to fly there on short notice. With only two seats left on a flight operated by a low-cost carrier (LCC), Jain had to shell out Rs 50,000 for the 45-minute flight to the Uttarakhand capital. “There was no other option. And, I had to report for the meeting at a certain time. Thankfully, I got a seat. In a multi-operator scenario and a free economy, prices for air tickets are a function of demand and supply,” remarks Jain, Managing Partner at law firm PSL Partners, while reminiscing about that day nearly seven years ago. Fast-forward to 2023, and airfares have again been heading north since last August, when the government removed fare caps introduced as a result of the Covid-19 pandemic, to prevent airlines from overcharging. In recent weeks, however, fares have moderated slightly, by 4-5 per cent, on certain routes after the government’s intervention.  

 “It’s a demand-supply situation. As long as the airlines are able to fill up their seats at a certain price, fares will go up,” says Sabina Chopra, Co-founder & COO of Yatra, one of the leading online travel agencies (OTAs) in the country. Giving Goa’s example, she says reservations for flights to the popular tourist destination were on the higher side even during the peak of summer in May and June.

We are operating in a high season... Go First, which used to operate on 315 routes, is no longer operating. So, we have had a capacity squeeze in airline seats

Jyotiraditya Scindia
Union Minister
Civil Aviation at a Media Briefing

“Domestic airfares have jumped by up to 30 per cent between January 2022 and May 2023, from the pre-pandemic period of January to December 2019,” says Saujanya Shrivastava, COO of Flights, Holidays & Gulf Cooperation Council at the country’s largest OTA MakeMyTrip. With the lifting of Covid-19 restrictions and revenge travel gathering steam, passenger air traffic crossed the pre-pandemic level in December 2022. It’s not simply supply and demand that decides airfare, says Shrivastava. “Multiple factors, including the availability of the operational fleet, movement of crude prices and much more” come into play when determining prices, he explains. 

Shrivastava has a point. Crude oil, for example, averaged $65 a barrel in 2019 and $100 in 2022. It even climbed to a monthly high of $133 a barrel (spot prices) on March 8, 2022, on the back of the Russian military action in Ukraine. Other operational costs have also increased. By the middle of last year, most carriers had restored old salaries that were cut steeply during the height of the pandemic. Even costs associated with leasing or purchasing new aircraft are on the rise as a result of the current shortage of planes and rising metal costs. The prevailing high airfares are a direct consequence of all these factors.

Even though more and more Indians are travelling by air, not everyone is enamoured by the high fares. In May, 13.21 million passengers travelled by air as against 12.89 million the previous month, per data from the aviation regulator Directorate General of Civil Aviation (DGCA). Many believe Indian airlines are taking advantage of this jump in demand by charging exorbitant prices. A large part of the blame is attributed to domestic carriers not deploying full capacity on routes approved as part of the current summer schedule (from March 27 to October 29). 

But many in the industry disagree. “If the allegation is that airlines are suppressing the capacity to command higher airfares, then such allegations are baseless, unfounded and are made with a very poor understanding of airline economics. The real reason why airlines cannot deploy their full capacity is technical,” says Arun Kumar Singh, CEO of Ahmedabad-headquartered regional carrier IndiaOne Air. Singh is quick to point out that the cumulative fleet size for all civilian airlines in April 2023 was 722 aircraft; of which 116 were grounded. Due to the grounding of Go First in May, that number has increased to 142. “This is a temporary problem and the situation can be expected to change for the better within a few months,” he adds.  

Arun Kumar Singh
CEO
IndiaOne Air

Further, Indian full-service carriers and LCCs made consolidated cumulative losses of Rs 98,252 crore between FY13 and FY23, with FY16 being the only year when the industry posted a profit of Rs 223 crore, according to data compiled by BT. However, Jitender Bhargava, former executive director of Air India, is quick to dismiss this line of argument. “You cannot have a situation that just because you have sustained losses in the past you get an inherent right to charge extraordinarily high fares. Take for instance automobiles; have their prices gone up disproportionately just because fewer vehicles were sold during the pandemic?” Rather, he suggests that cost inputs such as high central and state government taxes on aviation turbine fuel be rationalised to give airlines relief.

Given the fact that we will be getting into an offpeak season during the monsoon, we will see some semblance of affordability returning to airfares during July-August

Praveen Iyer
CO-Founder & Chief Commercial Officer
Akasa Air

Dynamic Surge

Indian aviation has come a long way from the time when fares were regulated, to the present era of dynamic pricing. Normally, an air ticket takes into account the base fare or the cost of commuting from point A to B, taxes (GST) and airport fee (User Development Fee), fuel surcharge, a service or convenience fee to issue the ticket, meals and seat selection in case of LCCs and surcharge for excess baggage. 

In dynamic pricing, prices of products and services are constantly adjusted to reflect fluctuations in supply and demand. This helps companies stay competitive by aligning prices based on factors like competitor pricing, demand-supply and external factors such as holidays, festivals, events and currency fluctuations. Moreover, certain high-demand destinations such as Srinagar, Leh, etc., that are inhibited by terrain, weather and operating hours allowed by the Ministry of Defence, command higher fares owing to operational constraints and capacity restrictions. 

Jyoti Mayal
President
Travel Agents Association of India (TAAI)

Globally, airlines adhere to guidelines—laid down by the International Air Transport Association (IATA) to operationalise dynamic pricing—that contain norms for various booking classes referred to as Reservation Booking Designator (RBD) or simply, fare buckets that may go up to 26 classes, with lower fares in the buckets available for bookings done 90, 60, 30, 15 and 7 days before flight departure. Fares booked closer to the journey or on an immediate purchase basis move to higher buckets. The Rs 50,000 Delhi-Dehradun one-way fare booked by Jain belonged to this category. 

And while domestic airfares gyrate wildly, international fares have remained largely stable due to competitive pricing and lower operational costs. Further, in response to the furore over airlines charging higher fares for travel out of Imphal after clashes in Manipur and out of Bhubaneswar in the immediate aftermath of the Balasore train crash in Odisha, Union Minister of Civil Aviation Jyotiraditya Scindia convened a meeting of airlines on June 5 in New Delhi. Other than asking them to self-monitor surging fares, Scindia said at a media briefing that the government is closely watching the situation to prevent predatory pricing. He said the sector in India, as in the rest of the world, is a seasonal one with demand increasing from October to January, only to cool down till April before it revives again with the onset of school holidays in May. However, demand has been increasing due to a combination of factors this year. “One, we are operating in a high season. Secondly, Go First, which used to operate on 315 routes, is no longer operating those routes. Therefore, we have had a capacity squeeze in airline seats,” said Scindia.  

Because of this, demand has skyrocketed and average seat load factor has reached an all-time high, leading to an unparalleled surge in ticket prices. “Generally in India, we have experienced seat load factor of 80-84 per cent in high season. We are currently operating with 94-95 per cent seat load factor,” Scindia added.  

It’s a demand-supply situation. As long as the airlines are able to fill up their seats at a certain price, fares will go up

Sabina Chopra
CO-Founder & COO
Yatra

To ease the seat shortage, permissions have been granted to deploy additional flights on 68 routes, particularly between Delhi and Srinagar, Mumbai, Pune, Ahmedabad and Leh. Scindia says that fares have reduced sharply on those routes since airlines were asked to rationalise pricing. “Given the fact that we will be getting into an off-peak season during the monsoon, we are going to see some semblance of affordability returning in the July-August period,” says Praveen Iyer, Co-founder & Chief Commercial Officer of Akasa Air, the country’s newest scheduled carrier.

However, some like Bhargava feel the ministry has overlooked the real reason behind the jump in prices. “Seats were already in short supply because the number of flights approved by DGCA for summer schedule was not being adhered to by most airlines, barring Akasa which operated 103 per cent of flights and IndiGo which operated almost 100 per cent,” he says, adding that Air India and Vistara operated at about 85 per cent, while  SpicetJet operated only 50 per cent of flights. “And this fact has gone unrecognised,” he says.  

Jyoti Mayal, President of the Travel Agents Association of India (TAAI), agrees with Bhargava’s observation. “All airlines—international or domestic—are not flying to their full capacity. Several of them have problems related to engines, maintenance, staffing, etc. Therefore, till the time the supply of seats is not going to reach the pre-Covid-19 period, fares are going to keep climbing up.”

A Short Reprieve

The recent correction in fares may be temporary for three main reasons. First, as Akasa’s Iyer points out, the July-August period is traditionally considered lean season due to the monsoon. Second, a substantial number of planes with Indian carriers remain grounded due to supply-side challenges for spares such as engines. And, finally, the onset of the festive season in October will result in a sharp revival in bookings.  

So, what’s the way forward? According to Bhargava,  “the ministry or the DGCA... must recognise the fact that if Go First’s exit led to an increase in fares as a result of reduced [seat] capacity... the same logic [should] be applied in the case of airlines not operating the requisite number of flights that they had themselves offered to operate.” Akasa’s Iyer thinks this may also be the right time for airlines to look at ways to cut costs. “The aviation market is governed by a lot of external factors like the cost of fuel, but it comes down to airlines… imbibing a strong culture of cost controls. Once you do that, it has a direct bearing on the overall performance of the enterprise.”

Seats were already in short supply because the number of weekly flights approved by D GCA for summer schedule was not being adhered to by most airlines

Jitender Bhargava
Former Executive Director
Air India

TAAI’s Mayal, however, feels the high airfares will sustain. “In the time spent in this business, I have never seen fares coming down once they go up, as the supplier (airline) also realises there is demand. Airfares crash only in the eventuality of a lean season and any such dip is also momentary.”  

Interestingly in the post-pandemic period, there has also been a rise in bookings being made closer to the date of travel. If people were earlier booking tickets up to 15 days in advance, this has been reduced to seven days, leading passengers to pay higher prices. “Although fares will rationalise, they aren’t going to come down to pre-Covid-19 levels. People need to come out of the Covid-19 insecurities on cancellations as you can’t have unplanned or last-minute travel right now,” observes Yatra’s Chopra.

The high fares have also led some in the travel industry to seek the intervention of the Competition Commission of India (CCI) on the issue of alleged cartelisation by airlines, a claim that has summarily been dismissed by most observers. “Regulatory intervention, including by CCI, would only be possible in situations where there is proof that the price hike has been artificially created, or the operators have engaged in cartelisation. Mere allegation would not suffice. Air travel is not a regulated sector, much like essential services like railways or roadways,” says Jain of law firm PSL Partners.

Meanwhile, if emerging trends are anything to go by, as revenge travel ebbs and other options such as a vastly improved highway network, and more semi-high-speed trains like Vande Bharat are launched, people wouldn’t mind shifting to them. For instance, the launch of the Vande Bharat Express, coupled with the introduction of Akasa Air flights on the Bengaluru-Chennai route, has resulted in airfares in the sector declining by nearly 30 per cent year-on-year. “The moment a capacity-starved market gets an influx of capacity regardless of road, air or railway, it is not only going to enhance connectivity but also fulfil the need gap that had existed for a while,” surmises Iyer. Those paying high prices for air tickets will be praying for more of that.