Tuesday, June 29, 2010

Airlines to score high with Games, airfares to go up 15-20% after Aug

Air fares are expected to rise by 15-20% after August, since advance bookings for the Commonwealth Games 2010 in New Delhi will start in October. It is also expected that leisure travellers will plan their holidays during this time, keeping the Diwali vacations in mind—thereby increasing air travel.

There is, however, a nominal hike in airfares in the offing soon, with fares poised to go up by Rs 100 for domestic travel and Rs 500 for international travel starting July 1. This is owing to the service tax, capped at Rs 100 on domestic travel and at Rs 500 on economy class international travel. Also, fares could go up in case of an unprecedented rise in aviation turbine fuel cost (ATF), which constitutes over 50% of the operating cost to any airline.

Says Bhawna Agarwal, vice-president (airlines) at Yatra.com, “From August, there will be an escalation in advance bookings on account of the CommonWealth Games 2010, coinciding with seasonal booking for summer vacations. As the holiday season commences, airlines will, in full swing, try and improve yields on routes with high-density traffic.” Agarwal also adds that from Thursday, fares will see a nominal movement of Rs 100 in the domestic category which is a negligible percentage increase calculated on the gross value of a ticket. The June quarter is considered a lean season and fares on certain key sectors were already as low as Rs 2,000 in the first week of June, leaving rooms for fare hikes.

Airlines are in no mood to hike fares immediately due to a lean season, unless the situation demands so. According to a spokesperson from Kingfisher Airlines, “As and when there is a fare hike, we shall announce it.” However, in January 2009, all carriers had simultaneously announced a fare hike of up to 25% on key profitable routes where the loads were above 80%. Since then, airlines have been following a cycle of peak and lean seasons while revising fares.

Mahantesh Sabarad from Fortune Finance sees a passenger growth of 15% in the domestic space as there is an increase in demand at par with supply. Airlines like SpiceJet and Jet, amongst others, will receive delivery of aircraft in the ensuing months. These aircraft will be deployed on high-traffic routes.

However, the crucial factor in determining a fare hike is the ATF cost, which is currently under control, compared to August 2008 levels and even.

levels after that, when crude oil peaked at $147, a barrel, the highest levels seen in that time. However, the price did soften to $100 a barrel in the ensuing months.

Fuel prices have fallen year-over-year substantially and is now trading at $78.12 a barrel (as on Monday). An official from a full-service carrier says, “ If crude prices rise unprecedentedly, airlines have no choice but to raise fares.” According to a recent report by IDFC Securities, “ATF prices are pegged at approximately 45% lower than what they were in the financial year 2008-09, which has helped carriers like Jet significantly reduce their operating costs.”

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