Vistara launched a summer discount on April 19. It was immediately followed by a ‘Break from Home’ deal by sibling airline AirAsia India. Fares on both Tata group airlines begin at Rs 2,499. IndiGo, the market leader, has also entered the fray, with rates beginning at Rs 2,491. A day later, Go FIRST joined the fray, with prices starting at Rs 2,490, a rupee cheaper than IndiGo! The sale fares are available till April 25. SpiceJet has entered the fray with its Fly Away promotion, which is active through April 25 and offers prices beginning at Rs 2,492.
While the booking period is immediate, the travel term is between June and September, which takes care of the 15-day rolling fare limitations in Indian skies that continue to exist even after capacity caps are removed. The sales announcements came just days after the country recorded the largest domestic passenger traffic since operations resumed following the COVID-19 lockdown, but also experienced a rise in the number of active cases of the viral illness.
Airline sales are not a new phenomenon. The periodic selling cycle is carried out with several goals in mind. A sale revs up the market. Many people who are on the fence make a reservation in the hopes of getting a better offer. A deadline forces individuals to finalize their trip arrangements in expectation of a higher fare after the sale period. The airlines benefit from increased cash flow during the sale. Overall, it has always been a win-win situation.
The goal of the sale is to fill seats that might otherwise be unoccupied. A vacant seat is the most expensive for any airline. The unsold seat remains unsold once the airplane takes off. This includes using analytics, seasonality, and other factors to determine which seats to sell as part of the sale, how many seats to provide, and where sections of the network to offer them from.
This time, though, the deal is different. Airlines were having another massive deal just a few months ago, in late December and early January. This required travel between the middle of January and the middle of April. What’s the distinction? Prices back then were less than half of what they are now! Airlines had set the price of their on-sale tickets at Rs 1,122. They were, as usual, for certain industries, but that is a proviso that applies to any transaction.
With limited seats and sectors at the lowest costs, airlines, at least for marketing purposes, lower their fares. What’s the difference this time? Under price limits, the lowest prices are actually greater than the floor price! In fact, airlines could have begun this promotion for flights beginning the same day without breaching the price limitations.
What has changed this season?
Since the end of December, input costs have risen dramatically. Aviation Turbine Fuel (ATF), which accounts for about 37% of total airline expenditures, is priced at Rs 1,13,202.33 per KL at Delhi, the country’s main airport. This is a 48.8 percent increase over the price on January 1. As a result, ATF now accounts for a bigger proportion of spending, which is being passed on in some way or another as airlines strive to make ends meet.
Travel has made a comeback. While the pre-COVID milestone has yet to be broken, there is some assurance that travel will not be as seriously disrupted as in the second wave, based on the behavior pattern in the Omicron-led upsurge in cases during the January-February timeframe. While the monsoon has traditionally not been a peak season, things have altered in recent seasons to the point where typical non-monsoon locations such as Goa now receive visitors throughout the period.
Finally, the months of January through April are generally slow for travel in India. Festivals abound throughout the second part of the year. Some holidays happen on a Friday or a Monday, resulting in a long weekend, or passengers may request time off to enjoy a long weekend. This assurance also aids airlines in raising ticket prices!
What if the airlines are unable to fill as many seats as expected? The airlines certainly have the option of initiating another deal! A protracted battle in Ukraine, which has resulted in higher crude oil costs, no quick evidence of ATF price drops, and pressure to return salaries to pre-COVID levels are some of the reasons why rates have crept up as airlines strive to make ends meet.
With Air India now part of the Tata group and the country essentially divided into two main group-controlled airlines, would price discipline result, and is this part of the phenomenon? This might imply that it is time to say goodbye to 20% growth rates and instead focus on sustainable, modest growth that both passengers and airlines can live with.