Airlines say fares will hold

Airlines are set to keep fares on hold during February and March, the so-called lean months in terms of passenger traffic, on account of steady demand.

They won’t hike fares either despite capacity reduction and fleet rationalisation, industry experts say. A hike in fares improves yields, which is the revenue generated per seat.

Last year when the demand was down, airlines had cut fares.
Anand Kumar and S Arun, analysts with Bank of America-Merrill Lynch, said in a February 10 report that yields have seen 25% improvement and remained stable since the previous quarter with demand outgrowing supply over the last 6-8 months.

“Based on the current delivery schedules of various airlines and demand growth of 10-12%, industry capacity is expected to run out in 2011. This would further give the airline companies the pricing power thus strengthening the yields,” they wrote.

A senior Jet Airways official told DNA Money, “We will be maintaining status quo on our prices as of now.”  A senior official of the Delhi-based SpiceJet said that unlike the last few years, the gap between demand and supply is fast decreasing.

“While one cannot say that demand has outstripped supply, the gap between the two has narrowed down,” the official who
did not wished to be named said.

Last year, with the fall in load factors, airlines had considerably brought down their fares, which, in turn, saw yields fall by 50%.
However, the stabilising of prices and increasing load factors could be a sign of the tide turning for the aviation industry.

Traditionally, February and March are considered to be the weakest months for air travel when airlines, as a practice, give discounts to passengers to increase load factors.

“These are the months when average yields come down, usually leading to fall in prices. Reasons mainly being a slump in all sorts of travel including corporate,” a GoAir official said.

 “While these months are normally lean, this year we are witnessing demand, which is letting us maintain a fairly rational stand on pricing,” the SpiceJet official said.

While the load factors are improving, experts say airlines will be facing some pressure. But this would not result in a steep fall in ticket prices.

“We will not see more than 4-5% fall in prices. And demand is showing good signs and the sector will see some marginally good numbers as loads factors are also expected to remain stable,” an analyst with a local broking firm said.