Low fares drive passenger growth for airlines

Overall volumes are up over 20% in January-April and growth has been reported in all categories

Low fares are driving domestic air traffic growth, but the average revenue per passenger has declined from a year ago because of a 20 to 25 per cent year-on-year (y-o-y) drop in fares.

Volumes are up over 20 per cent y-o-y in January-April and growth has been reported in all categories such as leisure, corporate, small and medium enterprises, and meeting-incentive groups. Air traffic growth is largely due to domestic travellers because foreign tourist arrivals in January-April were up by only 2.7 per cent y-o-y.

“Travel demand has been on the rise because of low fares. Eventually, fares will have to catch up with a correction in crude oil prices. It may happen in two months,” said an expert. "The challenge for the airlines will be to sustain demand and check losses when fares go up. Last summer, domestic tourism and air travel were hit due to general elections and that is a reason why growth appears so strong in past two months," said Devesh Agarwal, editor of Bangalore Aviation, a blog.

On Monday, oil companies increased jet fuel prices by 7.5 per cent over May’s price.

While the operating revenue for Jet Airways was up 10.9 per cent y-o-y in January-March, its average gross revenue per passenger fell 11.7 per cent to Rs 7,562 y-o-y. Unit revenue and yield, which measure average revenue per passenger per km, are also down for Jet Airways.

Occupancy has increased in 2015, with occupancies in the first three months upwards of 82 per cent against 71 per cent in the same period in 2014. Passenger growth in India in January-March outpaced that of Australia, Brazil, China, Japan, Russia, and the US, according to the International Air Transport Association.

Capacity is up on metro routes, including Mumbai-Delhi and Delhi-Bengaluru, and lower prices have boosted demand. Vistara has added five flights on the Mumbai-Delhi route and Jet Airways has added flights from Delhi to Hyderabad, Chennai and Kolkata.  

Corporate clients are increasingly buying tickets at retail rates, which are turning out cheaper than discounted fares.  

“Compared to a year ago, we have seen a growth of 31 per cent in corporate travel on the Delhi-Kolkata route in January-April, followed by 28 per cent on the Delhi-Pune route,” said  Rakshit Desai, managing director (India), FCm Travel Solutions.  

“We have seen a major growth in people travelling to cities such as Pune, Ahmedabad, Indore, and Nagpur,” said Sharat Dhall, president, Yatra.com. “Most people are planning trips between one and three months in advance. Advance purchases are a lot cheaper,” he added.

Desai said, “In 2014, there were cost pressures on businesses. This year has begun on a cautiously optimistic note. Budgets for corporate travel are 10-15 per cent higher, with significant variance across sectors.”