Stock - India Airports
How will India's airlines respond to the fare cap withdrawal? Flying during India's upcoming festival season could be costly. Image Credit: Agency

Dubai: Airfares on India’s domestic routes could rise sharply from September with the government removing fare caps imposed in 2020. The decision, which will come into effect on August 31, is expected to bring relief to airlines including IndiGo, SpiceJet, Air India, and Vistara, especially since record high fuel prices have been eroding margins.

“The fare cap, being removed just before the start of the festive season, will see the market determine what domestic ticket rates should be,” said Ashwini Phadnis, an aviation analyst. “For example, with Durga Puja coming up, fares to and from West Bengal will see a spike – but this is unlikely to be true of all domestic sectors operated by the airlines.”

Flights from Delhi to Kolkata cost around Dh227 right now, but seen hitting Dh350 in the first week of October. A one-way ticket from Delhi-Mumbai will, however, remain at around Dh180-Dh200 in September and October, as per current indicative rates.

Flying from Delhi to Kochi costs Dh200-Dh250, but are seen as dropping to around Dh170 in the first week of September, before rising to Dh200 in October.

India's cap on domestic airfares
India regulated airfares in 2020 by imposing a minimum and maximum band based on a flight's duration. This was done to prevent ticket prices from spiking due to pent-up demand after restrictions were lifted on domestic air travel after the initial Covid phase

No discounts

“The high price of oil may restrict airlines from offering vastly discounted fares as they did during this period pre-Covid,” said Vinamra Longani, Head of operations at Sarin & Co, an aviation law firm.

Although the price of aviation turbine fuel (ATF) was reduced by 12 per cent on August 1, the depreciating rupee has managed to offset any possible gains. “Much like other Asian currencies, the rupee has depreciated against the dollar, resulting in rising USD-denominated costs such as fuel and aircraft lease rentals,” said Longani.

Indian aviation - fastest growing

In the week ending August 8, India was the fastest growing aviation market with a capacity of 3.8 million seats, up 29 per cent from the same period a year earlier – this is still 5 per cent below the 2019 level, according to aviation data firm OAG.

India’s airlines could continue facing headwinds in the current financial year, with losses expected at $1.4 billion to $1.7 billion, but down from about $3 billion in 2021-22, according to CAPA India.

Despite a few setbacks, 2022 looks to be a landmark year for Indian aviation. The country’s newest budget carrier Akasa Air, backed by billionaire Rakesh Jhunjhunwala, launched flights on August 7.

The airline’s initial network includes a total of 56 weekly flights between Mumbai and Ahmedabad and the southern cities of Bengaluru and Kochi on its new Boeing 737 MAX planes.

Jet Airways, which received its operator’s license in May, is aiming for a September launch. The airline was forced to ground all flights in 2019 due to mounting losses as it attempted to compete with low-cost rivals.

Staff shortages hurt

Industry insiders have warned about a looming staffing crisis for India's aviation sector.

“Air India is the only airline that can match the salary packages offered by the likes of Emirates and Etihad,” said a consultant. “Akasa and Jet Airways will most probably have to poach pilots and cabin crew from other operators.”