Fresh bookings and occupancy in domestic flights have dropped by almost 15 per cent in the last few days as customers defer or cancel trips over fears of coronavirus.
With domestic travel, generating bulk of the revenue for carriers slowing down, the slump in crude oil price will provide limited relief for airlines.
International air travel to and from India has already been hit due to travel ban and warning issued by many countries, including those from West Asia. According to analysts at JM Financial Institutional Securities, the international air route mix is 19 and 25 per cent for IndiGo and SpiceJet respectively.
Executives of Indian airlines said that the drop is primarily for flights to major metro cities like Delhi, Mumbai, Hyderabad, Bangalore, which are the prime revenue generators on the domestic front. “Domestic travel was the only thing that had somewhat insulated Indian airlines from the impact of corona. But now it is being impacted and that is visible from the fares,” said an airline executive.
A cursory glimpse of fares on the Chennai-Bengaluru route shows that tickets for the same day were being sold for Rs 1,100 lower or equal to fare of a Volvo bus.
“Airfares are falling in line with oil prices which continues to drop. Airlines are also refraining from increasing prices at the moment as they expect weakening of demand on the domestic side. Few domestic carriers are also waiving change and cancellation fees for immediate travel due to virus outbreak. While overall last minute fares on popular domestic routes have decreased 20-25 per cent, variable spot fares of certain routes have seen an increase due to holiday travel on occasion of Holi,” said Aloke Bajpai, co-founder of ixigo.
Fuel accounts for over 30 per cent of an airline’s operating expense and a low fuel environment will however help Indian carriers which have not been able to add fuel efficient planes into their fleets due to delivery delays (A320Neo) or regulatory bans (Boeing 737 Max) but with crude oil under $35 per barrel even conventional variants like the A320 Ceo and Boeing 737 NG will become attractive to operate, said an industry expert.
Brokerage firms are still optimistic that airlines will manage to generate a small profit in this quarter by curtailing operations. “ While there is a possibility of lower traffic in March & April, possible adjusting of flight frequency to maintain occupancy will help as an offset,” ICICI Securities said in a report.