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Pricing power eludes airlines as new capacity offsets traffic boost

Though the year-on-year passenger growth of 11.2 per cent for airlines in November was the highest since December 2018, it is unlikely to boost their yields calculated as the average fare per passenger per kilometre. The traffic growth was boosted by low fares and higher induction of capacity in the past few months by SpiceJet and IndiGo Airlines. According to analysts, the 14-day prior to booking date window for the industry shows that airfares on heavy-traffic destinations such as Mumbai, Delhi, Bengaluru and Chennai fell by 8-21 per cent in November year on year. Hence, airlines are not expected to show any meaningful growth in their yields for the December 2019 quarter.

November is historically a quarter of strong demand for airlines due to tourist season in various parts of the country. Airlines usually raise prices during the period. But, the current season is an exception since airlines have maintained affordable fares. This shows the airlines are focusing on securing more passengers to utilise the fresh seat capacity. According to the domestic brokerage Axis Capital, in the first two weeks of December, fares on the said key routes fell by 4-14 per cent year on year.

Among the listed airlines, SpiceJet recorded 43 per cent growth in its passenger traffic in November followed by IndiGo Airlines with 23 per cent growth. Given the stiff competition and lack of pricing power, the earnings outlook is bleak for the aviation companies

Source: Economic Times