Crunch in seat capacity behind high domestic air fares

Mihir Mishra Posted online: Thursday, Dec 26, 2013 at 0000 hrs
New Delhi : A year after Kingfisher Airlines discontinued operations, the combined capacity of all airlines in India has barely recovered to 2,30,000 seats, still 10,000 adrift of the number offered when Vijay Mallya’s airline was in operation.

The low pace of expansion of capacity by the airlines even in a year when the domestic passenger demand has risen an anemic 6 per cent is the reason for the high fares in the industry.

“Currently, average fares in the domestic sector are about 25 per cent higher than last year. We would see fares in the domestic sector rationalising, if airlines increase capacity (more). An aggressive capacity addition by the airlines would have offset up to 10 percentage points hike in fares,” said Sharad Dhall, president at Yatra.com, an online travel portal.

It is this shortage that eggs India based airlines to announce plans to buy or lease aircraft continuously with a target till 2024. The airlines need to ramp up their capacity to 1 million domestic seats a day which is four times more than the current 2,30,000 seats a day they are offering.

But industry sources said the industry can keep up its growth momentum only if it keeps up a delicate balance between adding capacity to keep fares low and yet keep the rates high enough to break even.

Airlines agree that the capacity addition by them in the recent years has not kept pace with the rise in demand.

“Our carriers need to increase the daily seat offering to one millions seats by 2016 to get the aviation sector going in the country. A couple of new players have announced plans to launch airlines in the country. I hope they add capacity aggressively,” said Keyur Joshi, co-founder and chief operating officer of MakemyTrip.com, India’s largest online travel portal.

“Increasing capacity will definitely bring down fares. We are in a market where one airline or the others are trying to distorting the market with ridiculously cheap fares, which is unsustainable,” said an airline executive, who did not want to be identified.

Currently, IndiGo is the only carrier that is adding capacity constantly and all others have been slow in terms of capacity addition owing to various reasons, including bad financials.

This lack of capacity shows in India’s ranking — it is currently one of the most under-penetrated aviation markets in the world. India has a fleet of around 422 aircraft for a population of 1.2 billion. In comparison, China has a fleet of 1,981 aircraft for 1.3 billion citizens.

A Centre for Asia Pacific Aviation data also shows that the number of domestic airline seats per capita is one of the lowest in India at just 0.07. This compares with 3.35 for Australia, 2.49 for the US, 1.38 for Canada and 1.05 for Japan. Yet to cater to demands of the aspiring middle class population (with annual income of Rs 5 lakh and above) of the country, which the travel and tourism industry estimates to be around 5 per cent of the country’s 1.2 billion people the availability of seats has to rise.

Air pockets

Airlines need to ramp up their capacity to 1 million domestic seats a day which is four times more than the current 2,30,000 seats a day they are offering

This shortage has pushed airlines to announce plans to buy or lease aircraft continuously with a target till 2024

The industry can keep up its growth momentum only if it can balance between adding capacity to keep fares low and keep the rates high enough to break even.