Soaring High, in the sky or on losses?
It was summer of 1997, I took an Alliance air flight to Delhi with my Mom, Dad and Brother. Those days online ticketing was not popular, so bought tickets from the Airline Office in the City. Each ticket cost some Rs. 2900-3000. Today, 24 years later, I still get the same sector flight at around Rs. 3500. This amount of Rs. 3500 includes increased Delhi Airport arrival fee. If you can see in 24 years , Airline tickets are hovering around the same cost. Whereas worth of Rs. 3500 in 1997 versus in 2021 is totally different What made it possible or Are we paying the real cost of flying?
Past and Present of Airlines in India
If we see the last one decade for financial health of Airlines in India, we very remember closure of multiple Airlines due to piled losses. Few Airlines names that become past are:
Jet Airways
Kingfisher Airlines
Air Pegasus
Air Costa
Air Carnival
In the presently operational Airlines, none of them is in profit. Rather, most of them are in huge losses. There is no hope of recovery of these losses with the pandemic situation in place. Fact is in pre-covid times, airlines were generating revenue not profit. Most of these operating airlines are struggling to stay afloat.
Airlines industry is a highly regulated industry where a screw change is also accounted in to books and signed by authorized persons. Such highly regulated industry is also subject to multiple factors for operations such as weather, geo-political situation, Human resource lobbies and the like. As per latest available data from DGCA, fuel only cost 37.4% of total cost of operation. Let us take an example:
Example Scenario
Therefore, as per this calculation, with all 187 seats occupied, airline has to charge Rs. 4590 on an average per seat to break even. One fact to consider is DELHI-BANGALORE is considered as profitable sector.
Present system of airline is to increase load at less fare. However, this means lowering margins to an extent that there are no positive margins.
Measure taken by Airlines
Cargo: Airlines take up cargo with usual passenger flight to have additional revenue per flight. With limitations of per passenger baggage weight, Airlines try to use baggage compartments for Cargo. This surely helps in increasing the revenue.
Unbundling the Fare: Unbundling means seat only charges are shown. Whereas, seat selection, meals, express check in, additional baggage fee are separated and sold as addons. These addons are mainstay in creating margins..
Changes/Cancellation fee: These days date or flight change as well as cancellation of ticket attract significant penalty. This is one of the channels for creating revenue. In a sale, people buy cheap tickets for travel planned months after. Usually, a significant percentage of these tickets are either modified or cancelled resulting in forfeit of a significant amount of tickets.
Dynamic Pricing: Airlines now sell tickets on dynamic pricing based on demand and supply. Dynamic pricing gives flexibility to position fares based on multiple factors such as past data of load, projections, demand and supply. Dynamic pricing allows filling the passenger load and optimize revenue. Full fare tickets are no more bought by people. Even most fliers never seen full fare of sectors flown by them.
Measure taken by Airline & Government
UDAN – Regional Connectivity Scheme - The Government of India came out with a plan to connect smaller cities by Air. To promote, they have fixed a per hour fare for limited seats. Also, Airlines will be given free facilities like no cost of landing, parking fees and the like. A Viability Gap Funding (VGF) is given to cover losses of airlines operating to these regional routes.
Possible Reason for Losses and reduced service
Viability. The single answer is input costs have increased many folds in last few decades. However, fare has not been increased to attract more load. Series of cost reduction measures were taken to cut costs. These cost reduction include restrict food, remove free seat selection, restrict baggage allowance, more seats per flight resulting in less space per passenger and the like. With reduced fares it is difficult to provide quality service.
Proposed course of action:
Rather than creating VGF for airlines, Government may consider
Allowing airlines to fix fares as per viability
use VGF amount to pay back to passengers as local money. Local money is something that can be given in a digital wallet. This local money can only be utilized in a specified geographical area at select local vendors, e.g. If a passenger travels from Delhi to Jaisalmer for vacation. Flight fare is Rs. 7000. If the government has planned to give Rs. 2000 on this ticket as VGF. The same amount is given to the passenger as local money (digital wallet). This Rs. 2000 should have some validity and should be used in and around Jaisalmer at local vendors. This will push the local economy of tourist places as well. Also, at the same time, allow airlines to decide fare as per viability.
One time Fare correction: one time fare correction is required to keep airlines breathing. Else, we will witness sick and dying airlines every now and then.
Conclusion
With lowered cost and quality, there is no luxury in airline travel. As European consortium rightly mentioned the same in aircraft series i.e. Bus in the Air known as Airbus. Losses in Airline in some or other way hit taxpayers. Staff lose jobs resulting in mental and physical issues for their families. We need a system or air travel that is sustainable. It is better to take a financial hit today for a better and sustainable tomorrow. OFLY objective is to disseminate fair and genuine information regarding Aviation. We do not represent any specific flight school. Author of this blog is an Indian Private Pilot and keen observer of Indian aviation market. He flies with multiple flying training schools of India. For consultation on Learn to Fly as hobby or profession. Book your appointment here or write to us info@jagaviation.in
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