Subdued demand and better yields force them to maintain ticket prices

 

Bangalore/Mumbai: The last one-and-a-half months have seen three hikes in aviation turbine fuel (ATF) prices, adding up to 18%. But airlines haven’t hiked their fares.

The reason, says a senior executive of IndiGo, is the smooth yield zone that carriers have flown into. Subdued demand for air travel is also keeping them from tinkering with fares.

 

Airlines fear any move to raise fares will only further pull down the number of domestic flyers that has already slumped 15% in March over the same month last year.

 

“Our (airlines) yields are much better than what it was at the end of the last year. Over the last two months, it has improved by 10-12%. We don’t see irrational fares in the market anymore. This has given us the capacity to absorb the impact of some hike in the jet fuel prices,” the IndiGo executive said.

 

A Mumbai-based analyst, who did not want to named, too said it would make better business sense for airlines to hold their current fare levels, given current market conditions. He said the situation is not so bad for airlines in absolute terms, but any hike in fares could lead to problems.

 

He added that airlines feel fare hikes or cuts have a sentimental impact on travel in India. “Some amount of leisure travel is happening now that will also go down and would be restricted to only urgent travel (if fares are revised). Why raise fares when you’ll earn almost the same (due to eventual drop in traffic),” he said.

 

Not all aviation executives feel the same way. Sanjay Aggarwal, chief executive officer of SpiceJet, said there is a need for fares to be raised by a couple hundred rupees to account for the rise in fuel prices. “Our passenger numbers have gone up 11% year-on-year, but yields are under pressure,” he said.

 

But his airline is stuck in a bind: “Full-service carriers are not raising fares, so we cannot as we want to maintain some price differential as compared to them.”

 

Some budget airlines are reducing fares on certain sectors, which is adding to the competition, an industry observer said.