Thursday, October 22, 2020

A radically different Diwali this year for airlines in India

For years, airfares in the days leading up to Diwali have risen sharply. Air travel in India typically sees a big spike in the run-up to Diwali and fares consequently rise in tandem. Diwali has also long been the rare occasion when the booking and pricing curves in India move hand in hand.

However, 2020 is different in many ways. Irrespective of the booking curve, there is a limit to how much the airfares can increase, stifling the ability of airlines to make money.

That is because air travel in India has been regulated since the restart of flights after the outbreak of the pandemic. Now there exists a lower and upper cap on airfares across routes.

Fare caps are in place until November 24. Airlines have a mandate to sell 40 percent of the seats at median fares.

The cap is not just on fares but also capacity, with airlines allowed only 60 percent of their fleet/flights to be deployed. Remember, the capacity limit was relaxed — initially, when the rules were formed, airlines were asked to operate at 33 percent capacity so as to maintain social distancing at airports. The problem is this capacity restrictions do not apply to airports, leading to a few of them operating at near normal levels in August.

Aviation minister Hardeep Singh Puri has hinted at increasing the capacity limit to 75 percent, but the industry is waiting for clarity. On October 19, there were 1,660 domestic departures, the highest in recent months, but just 53 percent of the daily departures in January 2020, before the impact of COVID19 was felt in Indian skies.

In terms of departures, airlines are fast approaching the 60 percent limit. The highest passenger numbers since restart of flights were recorded on October 18. At 180,838, the passenger numbers are still only 44 percent of the per day levels of January.

While airlines have traded barbs in the past for capacity dumping and the country has seen traffic follow capacity, a chart plotted for the last few days of passengers and capacity does not show the same trend. The passengers who took flights initially were attracted by cheaper fares. That is not the case now.

Puri had expected the air traffic to be normal by Diwali. He later changed tack to say it will happen the end of the year. Global body IATA expects air traffic to be back to pre-COVID19 levels only by 2024.

22/10/20 Ameya Joshi/Moneycontrol

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