Why Airlines Are Not Cheering The Rebound In Traffic Just Yet

Average percentage of revenue earned by the country’s top four airlines—which control nearly 90 percent of the market share—in the highest fare bucket on key routes fell in May compared to the last month, according to data released by Directorate General of Civil Aviation.

That comes as domestic air traffic clocked a 3 percent year-on-year growth in the month as airlines added capacity following the shutdown of Jet Airways (India) Ltd.

Earlier in 2016, the aviation regulator had asked airlines to specify the number of seats sold in the highest fare bucket, following complaints of airlines charging exorbitant fares. Airlines were asked to inform the regulator on a monthly basis the percentage of revenue that tickets sold in the highest fare bucket contribute to their overall kitty.

Airlines reserve a certain number of seats in each fare bucket. Seats under the lower fare category get filled first. Tickets for the last remaining seats on a flight are sold at a premium.

Revenue earned from the highest fare bucket showed a sharp decline mainly because spot fares were significantly higher in April due to Jet Airways’ shutdown. This led to most of the airlines selling more tickets in the higher fare category. Airfares in May, however, eased as most airlines, except Air India, sold lesser number of tickets in the higher fare category, the data released by the DGCA showed.

This capacity addition has also limited the spike in airfares, according to Sharat Dhall, chief operating officer (B2C) at Yatra Online Pvt. Ltd. Airfares currently are only 5 percent higher compared to last year, and more capacity is expected to come in, he told BloombergQuint.

A MakeMyTrip spokesperson said there has been some rationalisation in fares compared to the peak the travel portal witnessed immediately after Jet Airways suspended operations. Airfares dropped 7.5 percent in June compared to April and May, the spokesperson told BloombergQuint.

Ronojoy Dutta, the chief executive officer of IndiGo’s parent InterGlobe Aviation Ltd., said in a post-earnings conference call that fares would come down as the impact of Jet Airways shutdown fades, more capacity enters the market and the peak holiday season ends.