Airport constraints, high demand may cause airfares to rise in 2019https://indianexpress.com/article/business/aviation/airport-constraints-high-demand-may-cause-airfares-to-rise-in-2019-5517750/

Airport constraints, high demand may cause airfares to rise in 2019

In 2018, apart from a push to regional connectivity, the Indian aviation sector saw airlines bleeding financially on account of higher costs and an inability to increase fares in a highly competitive scenario.

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While several airlines witnessed higher load factors and increase in traffic, the surge in oil prices, rupee depreciation and competitive pricing caused them to post losses.

Notwithstanding high fuel prices, financial headwinds for airlines and bizarre incidents in the last 12 months, Indian aviation sector witnessed the 51st straight month of double-digit air traffic growth indicating high demand potential in the Indian air travel market. This, coupled with infrastructure constraints at larger airports, could lead to a potential uptick in air fares on trunk routes in 2019, experts said.

From an infrastructure perspective, while the larger airports remain constrained, the Centre’s flagship regional connectivity scheme UDAN – or Ude Desh ka Aam Nagrik – has resulted in addition of airports in smaller towns and far-reaching areas such as Northeast India, Jammu & Kashmir, etc taking the total airport count in the country beyond 100.

However, routes from these smaller airports have not contributed significantly to the passenger traffic growth. In the first nine months of 2018, a total of 6.25 lakh passengers were carried on UDAN routes, compared with 10.28 crore domestic passengers that India witnessed during the same period.

“It was a good start to the scheme and it definitely helped in improving infrastructure at many of our smaller cities by getting the airports in place. At the end of the day, these are smaller routes and they can’t be a large part of the market in any case. These are things that will grow over a period of time from a passenger point of view in terms of impacting the overall market. Going ahead, hopefully we will see more flights on these routes which could have a positive impact on passenger traffic,” Sharat Dhall, COO (B2C) at online ticketing aggregator Yatra.com told The Indian Express.

“Even where flights have been kicked off, it will take the airlines some time to add capacity and once that happens, it will help in terms of boosting the market on these routes,” he added. Despite kicking off of flights from these smaller airports, the UDAN scheme was not entirely successful due to instances such as Air Deccan and Air Odisha that could not start their flights as per the decided timeline and ended up shutting down the operations altogether.

In 2018, apart from a push to regional connectivity, the Indian aviation sector saw airlines bleeding financially on account of higher costs and an inability to increase fares in a highly competitive scenario.

While several airlines witnessed higher load factors and increase in traffic, the surge in oil prices, rupee depreciation and competitive pricing caused them to post losses. In September-quarter, all three listed carriers – IndiGo, SpiceJet and Jet Airways reported losses.

Industry experts have blamed constant capacity addition by airlines for restricting the ability to increase fares. Currently, 600 Indian aircraft are flying in the skies. However, infrastructure constraints at larger airports could cause this to change.

“There is definitely growth potential from a demand perspective but the problem that is there. The challenge is in terms of our large airports reaching full capacity, which means that airlines will not be able to increase the number of flights on routes such as Delhi to Mumbai and other bigger cities which will also become challenging.

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“The demand in these sectors might eventually outstrip the capacity on these routes and that might give some flexibility to the airlines to increase prices on some of these larger routes,” Dhall said.