Higher airfares have failed to generate profits for commercial airlines as air travel has gone out of reach of most middle-class families-due to the economic slowdown-and jet fuel prices have been rising relentlessly.
Adverse conditions in the aviation sector have begun to take their toll with even IndiGo, the country's largest airline by market share, posting an operating loss for 2011-12. The airline, which had started operations in August 2006, has been able to stave off loss so far and was the star performer in Indian skies.
The IndiGo management claims it is making profit but that appears to be on account of "other income" and not the operations of the airline. During the January-October period, passenger traffic fell 2.5 per cent compared with the same period last year. Airlines reported a steep decline of 15.7 per cent in domestic passenger traffic in October. Air traffic fell sharply from 54.01 lakh in October last year to 45.55 lakh passengers in 2012 despite the onset of the festival season with analysts blaming exorbitant fares as the principal factor for the decline.
Domestic airlines have posted a combined loss of Rs 2,585 crore-Rs 3,025 crore in the second quarter of this fiscal, traditionally a weak quarter for airlines, according to aviation think tank Centre for Asia Pacific Aviation (Capa). In its latest estimates on profitability of carriers released on October 23, Capa said that Indian airlines have returned to making losses in the second quarter because of significant structural challenges. Capa estimated a loss of Rs 1,540 crore-Rs 1,760 crore for national carrier Air India, Rs 13.75 crore-Rs 15.4 crore for GoAir, Rs 247.5 crore-Rs 330 crore for Jet Airways and Rs 137.5 crore-Rs 154 crore for SpiceJet.
Ankur Bhatia, managing director of world's leading travel solution provider Amadeus, said that airlines have to ensure that they work on their profitability to stay afloat adding that fares will peak on demand with Kingfisher Airlines getting grounded.
Prateek Mazumdar, head (marketing), Yatra.comm said that airfares have already peaked for this festive year-end . "Fares are purely based on demand and supply," he added. Carriers have been increasing fares since the beginning of this year especially since Kingfisher started cutting operations owing to mounting loss till it suspended operations in October. Airlines have increased fares by at least 50-60 per cent or even more for many sectors compared to last year.
The industry follows a dynamic pricing business model that involves varying prices of air fares. For example, a traveller buying ticket three months in advance pays less than the last moment ticket, which is reserved by the airline to earn more from those seats. The price of these reserved seats is sold at exorbitant prices depending on demand.
Carriers have hiked fuel surcharge ranging from Rs 150-Rs 250 for domestic travel and Rs 825 for a one-way international ticket after jet fuel price was hiked by a steep 7.6 per cent on August 31 and 17 per cent in July.
Courtesy: Mail Today