‘Fares rise only if there are takers, or they fall’

“When people are ready to book tickets at Rs40,000, what is the issue for government? When there aren’t any takers, fares would automatically come down,” says a top executive with a private airline, not wishing to be named.

“When we price tickets at Rs1 or Rs399, does the government say it is too low, raise the prices? Are we here to do business or what?”

While that is a difficult proposition to argue against, experts said the real reason why fares have spurted is the capacity constraint in the industry — or a simple lack of enough seats.

Ankur Bhatia, managing director of Amadeus, the company that runs most airline ticketing platforms in the world, said the industry is operating at 15-20% lower capacity than a few months back. “At the moment, 42 of Air India’s planes and 12 of Kingfisher Airlines’ are on ground. This has put pressure on existing capacity. That is why prices are so high,’’ Bhatia said.

According to him, higher fares would impact demand and force airlines to eventually lower prices to maintain their current seat load factors, hovering in the range of 75-85%.

“Even today, demand is definitely sensitive to price changes. The airlines have given a maximum and minimum price for each slab. They sell close to zero at highest price. If you look at the Delhi-Mumbai sector, ticket prices are lower this month compared to the previous months,” he said.

M Thiagarajan, managing director of Paramount Airlines, said by fixing very high fares for late bookings, airlines were ensuring faster cash flow to meet their operational cost.

“Airlines are trying to get customers to book early to ensure their cash flows are steady. Those who book early can still get excellent deals,” he said.

Thiagarajan said only about 10% of the total seats of airlines were sold at high prices.