India's travel industry is expected to grow at a robust rate, but escalating domestic air traffic coupled with rising ground fleet might send fares in the air
More people are packing their bags as India's travel industry is expected to grow at 12-14 per cent in FY25, according to Crisil. However, turbulence looms as domestic air passenger traffic might skyrocket, potentially sending aviation fares in the air due to demand-supply imbalances.
Last year's report projected that nearly 200 out of nearly 800 fleets could face grounding by FY24, even as domestic air traffic continues to rise. This surge in demand threatens to outpace supply, potentially taking a toll on passengers' pockets with higher airfares looming on the horizon.
Discussions during a recent parliamentary meeting hinted at the establishment of a separate entity under the aviation ministry to regulate air ticket prices, a domain currently untouched by government intervention. However, amidst the sector's existing challenges, the feasibility of such a move remains uncertain, leaving a larger issue being overlooked.
What Is Adding Fuel To The Fire
While the term 'supply chain issue' has become ubiquitous since the end of the pandemic, owing to geopolitical conflicts, the aviation sector is confronting what could be described as an 'impending crisis.'
Currently, two significant challenges are soaring to new heights. Firstly, air traffic in India has been taking off. Domestic air passenger traffic grew by 8.34 per cent year-on-year to reach 15.20 crore last year. December 2023 alone saw a remarkable increase of 23.36 per cent, with 1.37 crore passengers, suggesting that this year might witness even higher air traffic.
Secondly, the aviation industry is encountering a different kind of turbulence, marked by headlines dominated by major airlines. Spicejet recently announced the layoff of 1,400 employees, roughly 15 per cent of its workforce, in a bid to reduce operational costs. Indigo has been hit with delays, attributed to issues with its engine manufacturer, Pratt & Whitney. Meanwhile, Air India has been under fire from netizens due to broken business-class seats.
And let's not even get started on the fines raining down on the carriers, adding fuel to the fire.
It's worth noting that nearly 25 per cent of the fleet is expected to be grounded by the end of this fiscal year. Mechanical issues and maintenance requirements are primarily responsible for this grounding trend.
Yet, in this year's budget, the allocation for the civil aviation ministry was decreased to Rs 2,300 crore for the upcoming financial year. Particularly striking was the 60 per cent reduction in budgetary allocation for the regional connectivity scheme UDAN (Ude Desh Ka Aam Nagrik).
The aviation sector, already on shaky ground after the lockdown period, is poised to face increasing demand which may exacerbate existing challenges. As supply begins to outweigh demand, passengers might feel the pinch in their pockets.
The Past Tussle
During the Covid period, the central government implemented price caps for more than two consecutive years, establishing both upper and lower limits. The price range was set at Rs 2,900 (lower limit) to Rs 8,800 (upper limit).
Nonetheless, the Ministry of Aviation has time to time highlighted that airfares are subject to demand and supply dynamics, and the government has no plans to intervene in regulating ticket prices. The pandemic likely served as a wake-up call for dire times.
However, given recent geopolitical events and the domestic crisis mentioned above, there has been a call for regulating airfares during recent parliamentary meetings. Perhaps, for now, the call for regulatory measures remains speculative and has not been formalized into policy.
The increasing trend in wet leasing, which involves renting planes along with operating crew and engineers, might help meet the rising demand and keep prices in check. But this also signals an overlooked issue that our domestic aviation space lacks robust supportive infrastructure.
As the affluent segment continues to grow in India, achieving equilibrium without technological and monetary assistance may only remain the hope of the skies.