Airfares are rising, but don’t blame it on Vistara

The crisis at Vistara due to a shortage of pilots and consequent decline in flights has triggered a raft of discussions on a potential spike in fares of up to 25%. This is balderdash.

Fares remain dynamic in Indian skies and are on the basis of demand and supply. It is obvious that when the supply reduces in stable demand, the impact is on price. Airlines in India are seeing never before load factors, thanks to various issues like grounding of IndiGo aircraft due to engine issues and SpiceJet being a shadow of what it was in the past. At such high loads, if more capacity is taken out of the market, there is limited room to handle the spillover and this could lead to fares going up.

Flights are more, than yesterday and last year

While the fares are dynamic, the capacity is fairly predictable. The first seven days of April saw airlines in India deploy 21236 flights on domestic routes. This was even with a blip on the third of April, when departures went below the 3,000 departures per day mark. These numbers are actually higher by almost a percentage since the first seven days of March had seen 21043 domestic departures and 2% more than April 2023.

April is already averaging 10 flights more per day than March. Compare that to May 2023, when GoFIRST abruptly shut down, the industry is doing over 200 flights per day which is a significant capacity growth.

Also read: Summer travel: The routes with fewer—and more—flights

Fares remain high even in anticipation

Are the fares really going up? The answer is yes, but the reason may not be Vistara. The airline has neither given a specific number of flights that are cancelled nor the routes. The airline has however said that it would be reducing between 25-30 flights a day for the entire April. At a country level, this means a reduction in capacity by 1% only and that gets us to ask the question, how much of an impact can it have on air fares?

Air fares, though dependent on capacity, are also a function of input cost and those are ATF prices, USD-INR exchange rate, airport charges, employee costs amongst others. The larger ones like ATF and exchange rate have not been kind. ATF is up 2.5% over last year while INR is weaker by 1.4%. ATF typically constitutes between 33 – 37% of all expenditure for the airline while a weaker INR means higher lease rentals since they are dollar denominated.

Also read: Vistara decides to scale back by 10%. What does it mean for the passenger?

Pricing is a science and art. The return fares between Delhi and Leh for July start at INR 20,000. The same is available at less than half of that price for the next week, an indicator of how traditional wisdom about booking in advance does not work as seasonality plays an important part in setting fares. Likewise for the month of May, the return flights to Goa from Delhi are available at the same price as those to Srinagar. The Delhi – Goa flight time is over 180 minutes, while that to Srinagar is just 90 minutes. The Delhi – Goa sector has far higher options than those to Srinagar, a classic example of seasonality clubbed with supply.

Tail note

Some sectors where the pullout by Vistara on specific days or series of days leads to a capacity reduction by 25% or more will have an adverse impact on fares on the sector, as the demand and supply mismatch becomes wide. However, at a country level – the feared increase in fares is unfounded as a 1% drop in capacity cannot have an irrational impact. What is happening instead is firming up of loads as the holiday season picks up and seasonality pushing up fares as has been the case all along.

The season pre-Diwali in 2023 was a clear indicator of how passengers in India react to high fares. Airlines across the board had firmed up fares leading up to Diwali. With higher fares, the load factors dropped – an indicator that there were no takers for these fares.

Also read: The longest and shortest flights this summer in India

There was a sudden drop in fares on some sectors, to an extent that fares closer to departure were lower than prices of advance purchase which pushed the market and gave the much needed spurt swinging the load factors, a strategy which was not repeated during the December holidays by airlines – an indicator that there is a point beyond which pricing cannot be pushed.

The writer is an aviation analyst.