Excess Capacity Makes Airfares Cheaper Than Rail Tickets To These Indian Cities
Autorickshaw rides, according to Union Minister Jayant Sinha, are more expensive than air travel by cost per kilometre. That may be hyperbole, but cheap airfares have inflicted pain on carriers when fuel prices surged.
How cheap is air travel? Cheaper than train rides at least. An air ticket for a Mumbai-Delhi bound flight may cost as low as Rs 2,200 if booked 15 days in advance, according to data compiled by BloombergQuint from MakeMyTrip, as of 2:00 p.m. on Sept. 5. That compares with lowest fare of Rs 2,400 charged by the Indian Railways, for air-conditioned travel, according to data compiled from Indian Railway Catering and Tourism Corporation. Similarly, cheapest air tickets cost lower than Mumbai-Kolkata rail ticket prices.
Excess seat capacity is behind low airfares. For the domestic aviation market, the available seat kilometre—the number of seats available multiplied by the number of kilometres flown—grew more than 30 percent in less than two years. That led to a double-digit growth in air passenger traffic in the world’s fastest growing aviation market.
But increased competition meant airlines couldn’t increase fares with rising demand. Higher crude only made it worse. Prices of aviation turbine fuel, which contribute more than a third of an airline’s costs, rose 27.4 percent over the last year in India. That coupled with a weakening rupee eroded profit margin of domestic airlines.
Low fares aren’t sustainable due to rising input costs, Rahul Bhatia, co-founder and interim chief executive officer of InterGlobe Aviation Ltd., operator of IndiGo, told analysts in a conference call. The airline’s net profit was nearly wiped out in the quarter ended June on rising fuel prices, competitive fares and foreign exchange loss.
Yet, India’s largest carrier is behind the capacity surge that has in part pulled fares down. IndiGo contributed most of the fresh capacity added Indian airlines. In the last two years, the country’s largest airline added over 10 lakh seats—more than the combined seats added by Air India Ltd., Jet Airways (India) Ltd. and Spicejet Ltd.
And it’s expected to rise more as IndiGo continues to add A320 neo and smaller turboprop ATR aircraft to its fleet. The number of seats available on the airline, including international flights, is expected to increase 28 percent year-on-year for the ongoing September quarter and 25 percent for the full year.