NEW DELHI: Air travellers in India may have to face yet another hike in fares.
The new management at Air Indiais not afraid of losing passengers due to fare hikes as airline CMD Rohit Nandan hinted at more price revisions to absorb spiralling costs incurred by the airline.
Its peers with larger market shares in terms of passengers carried, such as IndiGo and Jet Airways, still wait for cues from Air India on fare pricing. Air India is ranked fourth in terms of market share, but by virtue of its stranglehold in terms of routes it serves and the number of aircraft at its disposal, the national airline is still able to dictate pricing trends in the domestic sector.
"If the fuel prices go up further, the carrier will not shy away from passing costs on to the passengers," Nandan told ET. Nandan is emboldened by the high loads that the airline has witnessed in the past few months, in spite of expensive air tickets.
Its load factors (number of occupied seats versus total seats in an aircraft) also saw improvement in June at 71%, while in July, which is a lean month for air travel, loads are at around 65%, similar to the rest of the industry, in spite of higher fares.
"If we don't pass on fuel costs, we won't break even," reasoned Nandan when asked if the carrier could increase ticket prices further.
Air India and its peers have gained considerably from Kingfisher Airlines' financial trauma, which forced Vijay Mallya-promoted airline to ground most of its 60 odd aircraft, barring 11 that still fly. KFA's depleted fleet gave pricing muscle to the rest.
Last Monday, Air India hiked fuel surcharge by Rs 150 on domestic flights of up to 1,000 km and by Rs 250 for longer ones. It hiked fuel surcharge for international flights by $15 for a one-way ticket and by $30 for return tickets.
This is in sharp contrast to the airline's approach last year when the old management decided to slash fares by 20-30% in the January-March quarter in order to garner passenger traffic, which continued till year-end until Kingfisher Airlines withdrew substantial capacity from the market due to financial problems.
Typically, the entire airline industry follows suit when Air India increases or slashes airfares. Consequently, the entire industry had piled on heavy losses because of under-pricing of air tickets, especially in the face of soaring fuel prices.
"The Indian airline industry still needs to hike fares by 3-5% in order to break even," Dinesh Keskar, Boeing's senior vice-president for Asia Pacific and India said.
Industry experts think that increasing fares to cover costs is a sensible strategy. "Air India is beginning to think in a commercially competitive manner and I hope there is no external intervention to influence its commercial strategies. We are seeing a strategic shift from a pricing model that prefers leadership even while incurring loss to a cost-recovery pricing, and that is a positive development," Centre of Asia Pacific Aviation (CAPA) South Asia CEO Kapil Kaul said.
The new management at Air Indiais not afraid of losing passengers due to fare hikes as airline CMD Rohit Nandan hinted at more price revisions to absorb spiralling costs incurred by the airline.
Its peers with larger market shares in terms of passengers carried, such as IndiGo and Jet Airways, still wait for cues from Air India on fare pricing. Air India is ranked fourth in terms of market share, but by virtue of its stranglehold in terms of routes it serves and the number of aircraft at its disposal, the national airline is still able to dictate pricing trends in the domestic sector.
"If the fuel prices go up further, the carrier will not shy away from passing costs on to the passengers," Nandan told ET. Nandan is emboldened by the high loads that the airline has witnessed in the past few months, in spite of expensive air tickets.
Its load factors (number of occupied seats versus total seats in an aircraft) also saw improvement in June at 71%, while in July, which is a lean month for air travel, loads are at around 65%, similar to the rest of the industry, in spite of higher fares.
"If we don't pass on fuel costs, we won't break even," reasoned Nandan when asked if the carrier could increase ticket prices further.
Air India and its peers have gained considerably from Kingfisher Airlines' financial trauma, which forced Vijay Mallya-promoted airline to ground most of its 60 odd aircraft, barring 11 that still fly. KFA's depleted fleet gave pricing muscle to the rest.
Last Monday, Air India hiked fuel surcharge by Rs 150 on domestic flights of up to 1,000 km and by Rs 250 for longer ones. It hiked fuel surcharge for international flights by $15 for a one-way ticket and by $30 for return tickets.
This is in sharp contrast to the airline's approach last year when the old management decided to slash fares by 20-30% in the January-March quarter in order to garner passenger traffic, which continued till year-end until Kingfisher Airlines withdrew substantial capacity from the market due to financial problems.
Typically, the entire airline industry follows suit when Air India increases or slashes airfares. Consequently, the entire industry had piled on heavy losses because of under-pricing of air tickets, especially in the face of soaring fuel prices.
"The Indian airline industry still needs to hike fares by 3-5% in order to break even," Dinesh Keskar, Boeing's senior vice-president for Asia Pacific and India said.
Industry experts think that increasing fares to cover costs is a sensible strategy. "Air India is beginning to think in a commercially competitive manner and I hope there is no external intervention to influence its commercial strategies. We are seeing a strategic shift from a pricing model that prefers leadership even while incurring loss to a cost-recovery pricing, and that is a positive development," Centre of Asia Pacific Aviation (CAPA) South Asia CEO Kapil Kaul said.
"Given the narrow margins, Indian carriers have no options but to pass on the fuel price hike to passengers. This will naturally impact traffic volumes. The corporate sector is restricting air travel for its employees and tourists are choosing international low-cost destinations over domestic ones. Airlines are banking on the upcoming winter season. Higher fares will hurt that too," says Amber Dubey, Partner and Head-Aviation at global consultancy KPMG.
Air India, in the past few months, has improved on many important parameters. AI's On-Time Performance (OTP) has reached 85% (perhaps its best ever and among the highest in the industry), its cash losses have come down to 38 crore in the June quarter versus 530 crore in the same quarter last year and it turned in a cash profit for the first time in 60 months in the month of June at Rs 48 crore.
http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/air-travel-may-get-costlier-as-air-india-mulls-fare-hike-due-to-costly-fuel/articleshow/16330911.cms?curpg=2Air India, in the past few months, has improved on many important parameters. AI's On-Time Performance (OTP) has reached 85% (perhaps its best ever and among the highest in the industry), its cash losses have come down to 38 crore in the June quarter versus 530 crore in the same quarter last year and it turned in a cash profit for the first time in 60 months in the month of June at Rs 48 crore.
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