Explained: Why airfares are likely to remain at elevated levels till July 2019https://indianexpress.com/article/explained/airfares-likely-to-remain-at-elevated-levels-till-july-2019-5727854/

Explained: Why airfares are likely to remain at elevated levels till July 2019

Following banks’ refusal to inject funds into the airline for immediate requirements, Jet Airways suspended operations on April 17. This pulled out almost one in six aircraft from Indian skies.

Explained: Why airfares are likely to remain at elevated levels till July 2019
While this may hurt the pockets of the consumers, it brings good news for domestic airlines that are witnessing margin pressures.

Even as most airport slots across the country vacated by Jet Airways following its suspension last month have been re-allocated to other airlines to fill in the void, sectoral experts believe that airfares will continue to remain at elevated levels till July 2019.

However, while this may hurt the pockets of the consumers, it brings good news for domestic airlines that are witnessing margin pressures.

“With reduced competition and improved airfares, operating margins for airlines would improve during 2019-20. We do expect all airlines to report operating profits during 2019-20. Though the profitability would continuity to largely depend on the crude oil prices,” CARE Ratings said in a research note.

According to sources in the Civil Aviation Ministry, around 480 slots of Jet Airways have been re-allocated — and a majority of these have gone to SpiceJet, followed by IndiGo, Vistara, GoAir and AirAsia India.

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The fares on the international routes may moderate over the next two months as the inventory levels would gradually recover with more domestic airlines planning to ramp up their international operations across routes, the research report said. Domestic passenger traffic growth during the year would moderate to lower double digits and higher single digits of between 8-12 per cent, as fare prices remain high, it added. With Jet Airways’ entire fleet grounded, it would take considerable time for domestic airlines to make up for the extinguished seat inventory.

Following banks’ refusal to inject funds into the airline for immediate requirements, Jet Airways suspended operations on April 17.

This pulled out almost one in six aircraft from Indian skies. The research report also pointed to higher crude oil prices as a factor of increased fares that may hurt the growth of the aviation sector.

“The low airfare scenario continued despite sharp recovery in crude oil prices post June 2016. It was only when crude-oil inched upwards of $60/bbl post December 2017 when the higher cost of ATF started hurting the airlines financially…publicly available data for listed companies and annual data for two airlines suggests that the overall industry had operating margin of 10-15 per cent when crude oil prices remained at $30-45/bbl in 2015-16. The margins started contracting post last quarter of 2017, when crude oil prices recovered and remained at over $ 50/bbl. For the 9M FY19 (April-December 2018), all Indian airlines made net losses. Apart from the crude-oil prices, factors like grounding of fleets due to technical snags added to the cost pressure which leads to cancellations and subsequent reduction in available seat inventory,” it noted.

Key routes like Delhi-Mumbai, Mumbai-Bengaluru, Delhi-Bengaluru etc. witnessed heightened fare competition and aggressive fare positioning helped some players maintain their market share and led to near-saturation in passenger load factors, the report added.