Thursday, July 25, 2024

Soaring Airfares: A Brake On Recovery

By Jitender Bhargava

Former Executive Director, Air India & Author

Ankana Shah, a Boston resident, is keen to attend a destination wedding at Mahabalipuram in the southern Indian state of Tamil Nadu in December; however, she is shocked at the high airfares. Travel portals quote a fare of around INR four hundred and fifty thousand. A return business class ticket was available for almost half the amount when she travelled three years ago. Why are the air tickets so astronomically high whilst following the oft-repeated dictum – earlier you buy, the cheaper the ticket, she asks with a sense of disgust and astonishment. 

S. Kapur, a Vancouver resident, has already faced the brunt of high airfares. When she travelled to Delhi in April ‘22 after restrictions on inbound travel were lifted, she paid Canadian dollars one thousand nine hundred for a return economy fare from Vancouver to Delhi, whereas in December 2019, she had paid Canadian dollars one thousand one hundred and forty. She realised the brunt of rising fares when family issues beckoned her to prepone her return travel. The airline asked her to shell out INR thirty-two thousand as a one-way “fare difference” and another INR seven thousand for the change in travel date.  

The high fares are justified by the industry, which largely are driven by the extraordinarily high jet fuel prices and Covid’s adverse impact on the industry during 2020-2021.  

Considering that airlines globally have gone through a harrowing time and managed to survive with or without governmental aid, one is, in fact, in a piquant dilemma as to whether one should empathise with the airlines trying to recover lost ground – both operationally and financially – or sympathise with the air travellers who are being made to pay exorbitant fares for air travel?

Normalcy, Still A Far Cry

Even though a semblance of normalcy is increasingly evident with more and more carriers resuming operations, announcing enhanced frequencies and new flights; more and more people expressing intent to travel, yet the industry appears to be far, far away from attaining 2019 levels. This is not only because the depth of demand destruction recorded in 2020 from which the industry is rising again was humongous but also because in 2019, the industry attained several milestones – a record 4.46 billion people had flown; airlines had collectively operated 38.9 million flights – more than ever before – and had accomplished an all-time high 82.6 percent seat occupancy factor. 

In 2021, when the industry resumed operations albeit with several restrictions, overall travellers numbers were just 47% of 2019 levels (2020 being considered a washout year). Overall travel numbers – both domestic and international – are expected to improve to 83% of the 2019 level in 2022, 94% in 2023, 103% in 2024 and 111% in 2025, as per the International Air Transport Association (IATA). Likewise, the number of flights, which had dropped to 16.9 million in 2020 from 38.9 million, was 19.3 million in 2021 and is expected to be 25.8 million in 2022, however still significantly lower than the 2019 level.

International Travel Recovery

The challenge in the international sectors has been infinitely more acute. In 2021, international traveller numbers were a mere 27% of 2019 levels. This is expected to improve to 69% in 2022, 82% in 2023, 92% in 2024 and 101% in 2025, as per the forecast by IATA.

The reason for faster recovery on domestic flights as compared to international routes is not difficult to guess. Governments of all countries were more inclined to relax restrictions for domestic flights, as they felt more confident of their own Covid-control measures than they were of measures adopted by other countries. The compelling need for economic revival, preventing growing unemployment, and internal political exigencies were some of the significant factors for governments to relax restrictions and resume flights.

As most countries had lifted all restrictions for international flights only towards the end of March 2022, the full impact of recovery may be expected only in the second half of the year. Hong Kong remains one of the few countries to still have quarantine restrictions for arriving passengers. The recovery has been good, but it will still require long-haul and sustained efforts to mitigate the adverse effects of the previous two years on the industry.

Air travellers hoping for moderate fares or at pre-Covid year levels of fare ought to view the environment in which the airlines are currently operating. Under-utilisation of aircraft fleet and shrunk networks due to restrictions and consequent fall in demand during the past two years have meant that fixed costs have had to be spread over a dramatically smaller capacity. This aspect is gradually receding as capacity deployment grows month after month, but costs remain a major challenge. 

High Fuel Cost

High fuel prices – with no signs of abating in the near future – primarily due to the ongoing Ukraine-Russia war and looming economic crisis, do not offer respite. Jet fuel price in early this month was around one hundred and seventy-one/bbl, more than double of what it was three years ago when it ranged between USD fifty and sixty-eight. The jet fuel price average thus far in 2022 has been USD One hundred and thirty-eight/bbl. Its impact on the fuel bill for airlines is expected to be $125.4 billion, thus making the operational environment even more precarious. The fact that airlines have suffered since 2019 and currently fuel accounts for 40% or more of operational costs cannot be overlooked. Airlines operate as per commercial viability and cannot operate at unsustainably low fares. 

As long as costs remain a challenge for airlines desperately trying to stop cash burn, the fares are unlikely to be moderate in the near future. An eternal optimist can, of course, hope that the war between Ukraine and Russia will end soon, energy prices will ease, and airlines will be able to deploy their full fleet and expand the network to at least pre-Covid scale besides recouping the losses to make operations financially sustainable. 

The wish list is indeed not only long, but most factors are also beyond the realm of airlines, so harbouring any hope for airlines to offer airfares that passengers considered reasonable in the near future could be wishful thinking for air travellers. It must, however, be said for record and to reflect the true ground realities that the quest for normalcy is as eagerly awaited by the airlines as the passengers. 

Jitender Bhargava, former Executive Director, Air India & author of The Descent of Air India


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