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Why are airlines raising fares in the lean season?

Airlines have raised fares buoyed by strong growth, passenger occupancy and high jet fuel prices, a trend that is likely to continue over the summer travel months

business Updated: Feb 22, 2017 11:30 IST
Tarun Shukla
demonetisation

IndiGo planes at the T-1 terminal in New Delhi.(Hindustan Times)

Airlines have raised airfares on all key routes even in the ongoing lean travel season, because of strong demand, high seat occupancy and rising jet fuel prices, a trend that is likely to accentuate over the peak summer travel months, according to airline executives and analysts.

This is a departure from the earlier practice of reducing airfares drastically from 10 January onwards after the end of the peak Christmas and New Year season.

“Fares for bookings within the next two weeks have definitely risen on all the key routes. It is likely that all the sales run in November and December for bookings in February and March have resulted in good loads (flight occupancy) for the airlines which has resulted in fares being raised for the last fortnight,” said Yatra.com’s chief operating officer Sharat Dhall.

Yatra was referring to the demonetisation drive that started in November forcing airlines to tempt more passengers into flying by offering early sales.

These sales typically announced around 10 January were brought forward to November and December for travel in the months of January, February and March. This meant many of the seats were already booked, giving room to the airlines to offer the rest of the seats at a higher price, their typical business model.

There are two additional reasons, according to an airline executive who did not wished to be named, why airlines are offering steep last-minute fares. One, airlines reported strong double-digit growth in passenger numbers even in January reflecting strong economic tail winds despite demonetization. Two, airlines which follow each other quickly during sales, have resisted flash sales for the immediate fortnight.

Partly, this has also to do with the realisation that fuel is now 50% more expensive than a year ago, said the executive. Fuel constitutes nearly half the cost of the airlines and in a way decides whether an airlines logs profit or loss, the executive said.

The combined profit of SpiceJet, IndiGo and Jet Airways fell 69% in the quarter ended December from a year earlier.

“It’s like the party is ending,” the airline executive said, referring to the windfall in the last fiscal year.

Air India, Jet Airways, IndiGo, SpiceJet, GoAir Vistara AirAsia India did not reply to an email seeking comments.

The current growth trend indicates fares may rise further in the coming peak season that starts late next March and goes up to June.

“Fares for the last fortnight are likely to stay high for the next few months as we will be getting into the peak travel season starting the second half of March all the way till mid to end June,” Dhall predicted.

Airlines are incentivising passengers to book early, as fares for those planning to book two weeks in advance are cheaper.

For instance, one-way Delhi-Mumbai economy tickets are selling for nearly Rs7,000 at present. But the same Delhi-Mumbai one-way economy ticket costs just Rs2,000 if booked in advance.

“Airlines seem to be keeping the fares low for travel that is more than a fortnight away (which is typically leisure bookings) while raising the fares for the last fortnight (more business travel bookings). It is clearly moving more Indians to plan their travel to avail of better fares and not pay really high fares at the last minute. So there is a shift towards more bookings made earlier,” Dhall said.

(In arrangement with Livemint)