Fewer passengers have chosen to fly across India in the peak winter holiday season between November and January 2012, as they prefer to save costs in a slowing economy gripped with higher inflation, signalling the worse is not yet over for Indian carriers.

This is not good news for airlines, that have been already struggling to remain profitable, hit by rising cost of fuel, fewer passengers and over supply. Airlines won?t be able to improve bookings by slashing prices, since prices are already low in a competitive market, experts say.

?They say Q3 is the peak season, but bookings and yields show it?s not at all peak,? Sanjay Agarwal, CEO of Kingfisher Airlines, said while announcing the company?s Q2 results. Kingfisher also have to repay R7,000 crore to lenders. It has already cancelled flights and closing down its low-cost arm.

An official at Jet Airways? Mumbai booking office said that forward bookings for December and January are not rosy at all. ?Bookings are 5-8% lower compared to last year. Even the November flights are registering only 70-75% seat factors. Usually, this figure is above 80%,? he said. He cannot be quoted as he is not allowed to speak to the media.

National carrier Air India, though, has high hopes for the winter season. ?We expect to attain seat factors of 80-85% in the winter season, which is the peak travel season,? said an Air India spokesperson. The spokesperson added that lower fares and special festival season offers will ensure high seat factors.

?Slowdown in business means bad news for airlines,? said Dhiraj Mathur, executive director, PricewaterhouseCoopers, a global accountant and consultant. ?Airlines have been bleeding by underpricing their tickets and since this is a price sensitive market, there is little room for increase.?

Ideally, airlines should compromise on seat factors for higher fares, he said. ?If they have learnt anything from the recent troubles, then they should shed this trend of pricing lower than cost,? he added.

Lower demand comes as a double whammy for airlines. Oil marketing companies had last week raised aviation turbine fuel or ATF prices by 2%. With little room to hike fares, airlines face a pressure on their margins.

?As rupee further depreciates, fuel prices will go up further,? said Vishwas Udgirkar, senior director, Deloitte India. It?s a Catch-22 situation for airlines, he added. ?They can either lose passenger load factor or increase fares to overcome the high costs or continue to suffer. The overall economic condition, the falling rupee, the sharp fall in the stock markets, have had a negative impact on consumer sentiment,? Udgirkar said.

The good news for airlines is that the supply-demand mismatch which was growing since August, according to data from the Directorate General of Civil Aviation (DGCA), is expected to ease as Kingfisher?s flight cancellations have reduced the available seat capacity. With airlines like GoAir, Jet Airways and IndiGo receiving aircraft deliveries during the first half of the fiscal, capacity growth had outstripped demand in August, September and October, according to data on DGCA website.

International air travel is also likely to get a boost as India becomes a cheaper destination thanks to a weaker rupee. ?Jet Airways? international operations have consistently delivered seat factors of around 80% and may even get better during the peak travel months of December and January,? said a Jet Airways spokesperson. The airline also gets better margins on its international operations.

During the fiscal second quarter, profit margins on international operations for Jet Airways were 13.6% as compared to -9.2% on their domestic operations. Kingfisher also expects margins on international routes to return to positive due to the higher international traffic demand. Profit margin on its international operations had slipped to -3.2% for the Q2.