Flyers Alert! Will airfares hit your pocket ahead of festive season? Jet Airways, Indigo, SpiceJet face this big issue
It would not be first time, when airfares are hiked by airlines to counter the shocks of fuel expense in their book.
We are just few days away from back-to-back festive season beginning with Navratri, followed by Diwali, Christmas. From October to December, is also considered the time of wedding session. During these period, there is heavy demand on vacation tickets as well, especially the air fares. Interestingly, the major airlines like Indigo, SpiceJet and Jet Airways are trapped in headwinds like crude oils, higher fuel cost and weak rupee. This has made many airlines suffer heavy losses, especially Jet Airways who is not even condition to pay salaries to its top management due to hefty fuel cost.
Now the festive season is right around the corner, what happens to your airfares that’s the real question. It would not be first time, when airfares are hiked by airlines to counter the shocks of fuel expense in their book.
According to Kotak Institutional Equities, our monthly fare tracker shows that airfares remain depressed, with both July and August 2018 ticket prices (for one-month forward travel) remaining weak.
This is further corroborated by CPI monthly inflation data on airfares, which shows month-on-month decline in airfares in July and August 2018.
In Kotak’s views, “ We thus believe 2QFY19 will be a challenging quarter for all airlines given weak yields and higher input costs. We see some improvement in fares offered in September (for travel in October), possibly on account of festive season demand.”
Going ahead, domestic ATF prices continue to rise, and 2QFY19 average price is 5% higher than 1QFY19 average.
Garima Mishra, analysts at Kotak said, “ Further, weak rupee impacts not only ATF prices, but also other US$-denominate costs such as interest payments on foreign debt, lease rentals, and capital cost of purchase of aircraft.”
Not only this, the passenger growth is less of a concern at the moment as cheap fares stimulate demand and possibly wrest some share from railways. CPI data indicates airfares have come off in FY2016-19TD, while railway fares have increased over the same period.
However, Kotak believes, the current low-margin scenario for airlines will necessitate fare hikes or capacity rationalization.