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Domestic airfares may fall by 5-7%

Experts attribute this to a fall in passenger demand by about four per cent in June

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After remaining high for quite some time, domestic airfares are expected to come down by up to seven per cent soon.

Analysts and experts attribute this to a fall in passenger demand by about four per cent in June 2012, compared to June 2011. Consequently, the passenger load factor of the carriers had also started falling due to the end of peak season.

“In a very short time, we can expect that airfares would fall marginally as airlines must be re-configuring their software. This software is adaptable to demand-supply and the concept of dynamic pricing. My guesstimate would be that airfares would fall in the range of five-seven per cent soon,” said Rajji Raj, president of Travel Agents’ Association of India.

All domestic airlines use this software and they follow a principle of dynamic pricing. There are various slabs of price ranges in which a limited number of seats are there. It is a game of demand and supply and the configuration of the aircraft, he added.

According to the Directorate General of Civil Aviation (DGCA) data, in June 2012, the passenger numbers had fallen to 5.1 million from 5.3 million in June, 2011, a dip of 3.84 per cent. This was the second fall after May 2012, of 0.08 per cent.

Analysts attribute this fall in passenger numbers to steep rise in fares by about 20 per cent.

In May, while demand had gone south, load factors for the top three airlines by market share had improved. But in June, the load factor for Jet Airways, and had started declining due to end of peak season. In fact, airlines were gaining despite a fall in passenger traffic due to rising airfares.

An aviation analyst who did not want to be named, said, “Even though the passenger numbers have fallen and jet fuel cost has come down by about five per cent in the last quarter, Kingfisher’s truncated schedule is offering enough traffic to rest of the airlines that they can afford to go for a very marginal correction and still retain their passenger loads.”

Kingfisher Airlines had cut its capacity sharply, operating only 12-13 aircraft and 90-100 flights a day in its summer schedule. Last year, the airline operated 66 aircraft. Now, its fleet size is down to 44.

Besides, the increase in Delhi airport charges by about 350 per cent and Airport Economic Regulatory Authority considering increasing the charges for Mumbai airport as well, is a deterrent for airlines to go for a steep fall. About 70 per cent of the flights in India have Delhi or Mumbai as origin or destination.

Manmeet Ahluwalia, marketing head of Expedia India, an internet-based travel website based in USA, said, “The course correction can happen anytime soon and historically the fares dip during this time.”

“With Kingfisher’s truncated schedule, there is still a lot of demand-supply gap in the market. Only a marginal correction is expected if at all it happens. Owing to high fuel surcharge coupled with taxes and recent increase in Delhi airport, the chances of the extent of airfare fall is small,” said Madhvan Menon, managing director, Thomas Cook.

Despite the DGCA’s crackdown against rise in airfares, the fare band that had been approved by was so wide that it made difficult to track fares and makes easy for airlines to maneuver them. The range was so wide that airlines can continue to charge higher fares without going beyond the range.

At present, a Delhi-Mumbai one way ticket is priced at about Rs 8,000 on most airlines, but it would still be within the stipulated fare band if airlines increased it up by Rs 4,000-5,000. That’s because the set band for different airlines in this route varies from Rs 2,700 to as high as Rs 16,000.

DGCA also said recently that fares may soften with the fall in demand, yet it was highly unlikely that they would go back to 2011 levels any time soon. The DGCA said higher operational cost and airport charges were responsible for the higher fares, although insisting that they were still within the prescribed band.

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