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Low demand pulls down airfares in peak season

LiveMint logoLiveMint 01-10-2017 Tarun Shukla

New Delhi: The beginning of every festival season sees a ritual unique to India. Air fares go up, people write petitions to their parliament representatives, which gets forwarded to the aviation ministry, which says air fares are not under price control, but still asks the aviation regulator to look into the matter, and then convenes a meeting of airline chief executives.

Not this time.

“Thankfully, no complaints yet this year,” said an aviation ministry official who did not wish to be named. It’s not hard to figure out why.

One-way economy airfares for several metro and non-metro cities which typically go for about Rs5,000-8,000 during this peak fortnight leading up to Diwali are selling for as low as Rs2,500-4,000. Sometimes even less. The story is the same on almost all routes except those which have limited flights like Delhi-Dharamshala, where a one-way economy ticket costs Rs12,000 even though it is a short 45-minute flight. Essentially, there are more seats chasing fewer passengers and fares have dropped almost 40-50%.

“If this is the situation in this quarter, you can imagine what will happen in the last quarter,” said an official of a private airline, on condition of anonymity. Finance officers of airlines look forward to the October-December quarter as it is considered the most profitable, and helps balance the losses in the lean January-March quarter.

“Some airlines are also cash-starved and are dropping fares to accumulate cash leading to a bloodbath,” the official cited above said.

An economic slowdown is also reflecting in tepid demand despite the fact that Diwali travel is more like a pilgrimage and has to be done, said co-founder of MakeMyTrip.com Keyur Joshi.

“Aviation is pretty much a bellwether of the economy,” Joshi said. “So, low fares during festive times indicates a general slowdown.”

Airlines, he said, were very bullish initially, keeping advance purchase fares or discounted fares to a minimum anticipating bumper demand. But a weaker economy now means they have more seats to sell.

“Had they sold more in advance, they would have been able to command a premium now and possibly make more money overall. Hence, forecasting for demand which also means forecasting economy and oil prices are crucial for making good money. This is an area our airlines need to work a lot harder,” he said.

What has also helped this year over the previous one is the addition of more flights by new airlines like Vistara and AirAsia India. Fares, for example, for Ranchi from Delhi, fell this month by almost a third to Rs2,100 if booked early when these two entered the market.

“Last year, there was surge pricing but we haven’t got any complaints this year,” said Sudhakara Reddy, founder and national president, Air Passengers Association of India. “There are a lot of empty seats to fill this time.”

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