Air Traffic Surges, But Fares Remain Flat Over Decade

04 Dec 2024 CW Team

Airfares saw a spike in 2023 following the post-Covid travel recovery but have since returned to pre-pandemic norms. Walsh noted that airlines face difficulty covering operating costs as fare increases have not kept pace with inflation, particularly the high costs associated with fuel.

Experts attribute the pricing challenge to fierce competition in the Indian aviation sector, despite significant market consolidation. Over the last decade, three airlines have shut down, and several mergers have occurred. Yet, this has not eased competitive pressures, as capacity lost to closures like Jet Airways in 2019 and Go First in 2023 was quickly replaced by expansions from IndiGo, Air India, and Akasa.

With IndiGo and Air India now carrying nine out of ten domestic passengers, the market operates as an effective duopoly. However, executives argue that competition remains intense. Airlines are compelled to offer competitive fares to attract customers, particularly on new routes, where price differences as small as Rs 200 can sway passengers toward trains.

Globally, airline consolidation has often benefited consumers by enabling larger carriers to spread fixed costs across broader operations, leading to lower fares. In India, however, airlines still face the challenge of stimulating demand to convert rail passengers to air travellers. "Competitive dynamics ensure ticket prices remain customer-friendly, as filling planes is a top priority," said Air India CEO Campbell Wilson.

(ET)

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Despite a 62% increase in passenger traffic since 2015, Indian airlines have struggled to raise fares enough to offset rising costs and inflation, according to Willie Walsh, Director General of the International Air Transport Association (IATA). Domestic airfares have remained close to or below 2015 levels, even as jet fuel prices and overall inflation have surged. Airfares saw a spike in 2023 following the post-Covid travel recovery but have since returned to pre-pandemic norms. Walsh noted that airlines face difficulty covering operating costs as fare increases have not kept pace with inflation, particularly the high costs associated with fuel. Experts attribute the pricing challenge to fierce competition in the Indian aviation sector, despite significant market consolidation. Over the last decade, three airlines have shut down, and several mergers have occurred. Yet, this has not eased competitive pressures, as capacity lost to closures like Jet Airways in 2019 and Go First in 2023 was quickly replaced by expansions from IndiGo, Air India, and Akasa. With IndiGo and Air India now carrying nine out of ten domestic passengers, the market operates as an effective duopoly. However, executives argue that competition remains intense. Airlines are compelled to offer competitive fares to attract customers, particularly on new routes, where price differences as small as Rs 200 can sway passengers toward trains. Globally, airline consolidation has often benefited consumers by enabling larger carriers to spread fixed costs across broader operations, leading to lower fares. In India, however, airlines still face the challenge of stimulating demand to convert rail passengers to air travellers. Competitive dynamics ensure ticket prices remain customer-friendly, as filling planes is a top priority, said Air India CEO Campbell Wilson. (ET)

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