Friday, March 15, 2019

Why The Boeing 737 MAX Ban Is Good For India

Whilst the world reels in tragedy from the 737 MAX 8 disaster, there has been one silver lining.

Fares in aviation price-war India have gone up, supplied local companies with much-needed cash revenue to keep flying.

What is the situation in India?
Aviation in India has a bit of a problem. It’s a huge market is so much opportunity, but the mass majority of the population can not afford air travel (This is a generalization). As such, the train network is very robust and next to China and Europe is one of the best in the world (you can go anywhere on trains).

So airlines have to find a way to compete with a poorer population that already has a great alternative on the ground. Whilst at the same time beat off competition.

Thus, tickets in India are being sold for as little as two cents! The airlines are so cutthroat with each other that they offer practically free airfares to get their first inital customers.

How does banning the 737 MAX 8 change things?
Because the 737 MAX has been banned from flying anywhere in the world, many airlines that heavily utilize the aircraft have found themselves with a capacity shortfall. If an airline was currently in a price war with another airline, and have their capacity banned, they would have to charge more for the limited seats they had left. This capacity vacuum in the market will quickly cause prices to accelerate back up and beyond previous levels.
Due to the banning of the 737 MAX, 14 different major domestic routes in India have seen prices increase up to 65% (since last year). One route actually increased by 50% in two days since the news was announced (from 8,000 rupees to 12,000 rupees).
15/03/19 Nicholas/Simple Flying