Monday, October 01, 2018

Forget fare hike! Airfares have actually gone down on metro routes; here’s why

While air passenger traffic has grown smartly over the past year, airlines have not been able to raise fares. That’s because they have added too much capacity; analysts say the sweet deals on aircraft purchases that carriers have cut have left them flush with funds.  For instance, IndiGo’s domestic passenger traffic increased 27% year-on-year in Q1FY19 but average fares on metro routes were down up to 10% y-o-y in the same period a year ago. This is when the country’s largest domestic carrier added 15% more capacity during Q1FY19 compared to Q1FY18.

Other major airlines like Jet Airways and SpiceJet too have been frantically adding capacity; analysts believe they are afraid of losing market share.

Affordable fares haven’t resulted in a significant increase in industry passenger load factor (PLF) or aircraft occupancy which remained flat at 87.5% in Q1FY19.
Analysts point out that airlines when they place a bulk order, they get themselves a hefty discount. On delivery, they pay the manufacturers just some of the cost.
Next, they sell the aircraft to leasing companies at the market price and lease it back to themselves. In the process they find themselves with a lot of liquidity.
01/10/18 Arun Nayal/Financial Express