Fare wars between airlines will soon become a thing of the past and travellers should brace for higher ticket prices. Tata Group’s move to merge its four airlines will give the industry a better control on capacity, which will lead to improved yields through higher airfares, Campbell Wilson, MD and CEO, Air India said on Monday.
Two players – IndiGo and Air India – will then control about 85% of the domestic market, thereby controlling prices. The two are looking to make timely additions to their fleets, currently at 960 aircraft.
Speaking at the CAPA India Aviation Summit 2023, Wilson said, “Pricing is a function of many factors, supply and demand, economic and demographic growth. There will be two significantly sized private airlines who have a responsibility to their shareholders to improve the financial returns.”
“There is going to be investments in people, systems and processes and all this will help to professionalise the ecosystem which ultimately leads to a profitable airline which leads to growth,” Campbell added.
Ajay Singh, chairman, SpiceJet welcomed such a consolidation. “Any consolidation (in the aviation market) should lead to better yields,” he said.
Vinod Kannan, CEO, Vistara said, “Airfares depend on a lot of factors. Since one player has a significant market share, they are price drivers. It’s good today that the customer has realised that the price has gone up and things are more expensive.”
As is known, Air India is bringing Vistara under its fold to operate a single full-service carrier. Similarly, it is merging AirAsia India with Air India Express to operate a low-cost carrier.
With passenger traffic almost hitting the pre-pandemic level in the first two months of the year, coupled with a constrained capacity, airlines have warned that the surge in airfares witnessed now will be the new normal as demand continues to outstrip supply.
According to ticket booking agencies, airfares during January and February this year were about 25-40% higher than the same months during the pandemic-hit 2020. With a strong focus on the need to be profitable, airlines are aiming to improve margins.
A note from CAPA said, “Pricing should reflect an intent to be profitable. The industry must not lose pricing discipline in H2FY24 and revert to the loss-leader fares that were prevalent prior to the pandemic.”
While the deficit between domestic passengers flown by the end of 2022 (123.3 million) against the pre-pandemic year of 2019 (144.1 million) stood at 14.4%, it reduced to under 2% during January and February this year (24.6 million) as against the same two months in 2020 (25.15 million), according to data supplied by the Directorate General of Civil Aviation.
IndiGo, the country’s largest airline is operating 1,800 daily flights as against 1,600 during pre-pandemic. Vistara, India’s third biggest airline, has also pumped in more capacity to meet demand. It is currently operating over 275 flights per day as against 200+ daily flights compared to the pre-pandemic period.