Soaring Demand, Prices: What's Behind The Surge In International Airfares In India?

International airfares were on fire during and just after the pandemic. Many fliers on Vande Bharat flights reported paying double or even triple the fare they paid prior to the pandemic. Only those who absolutely had to were flying internationally even when restrictions eased globally.

Things have cooled a bit on the international fares front,  but depending on the season and when you book, even at present, fares for international travel in and out of India remain around 25-30% higher. The spike in business fares is more pronounced than the economy. Occasionally and anecdotally passengers have even ended up paying double and at times even three times what they are accustomed to or what they feel the appropriate fare should be but these are more exceptions than the rule.

These higher rates reflect a combination of inflation and a shortage of seats on certain routes at specific times due to increased demand. According to aviation consulting and research company CAPA India, the international traffic to and from India for FY23 was about 60 million and it expects it to reach 72-75 million by FY24. The demand at this point is around 15-20% higher than their FY24 projections. Apart from the constrained capacity, there have been factors such as the Covid-19-induced lockdown, continuing visa challenges and Russia's invasion of Ukraine impacting US carriers that have been a cause of heightened airfares.

India's Freeze On Bilateral Seats

Meanwhile, the clamour for more seats in and out of India and increased bilateral rights is coming into the Ministry of Civil Aviation (MOCA) from all directions, pleas that are falling on deaf ears since the Indian government is maintaining the freeze on bilateral seats which happened after the liberal allotments during 2004-2008, a much-debated decision.

Although allegations have been made against then civil aviation minister Praful Patel on his decision to grant these seats, I would defend what Patel did at that time. Post India's 1991 liberalisation, the country changed in many aspects including imbuing many more Indians with a curiosity about the rest of the world, backed by a rise in disposable incomes that fuelled leisure travel. Travel for business too rose sharply. Faced with this burgeoning demand and in view of the inability of Indian carriers to provide capacity, I don't think the government had any choice but to do what it did. Had the government not increased seat entitlements, the price paid by the country would have been far higher.

Post 2008, a sort of clampdown on bilateral seat enhancements came into place. The Jet-Etihad deal gave the latter some more access, some additional seats were granted to Emirates and Oman Air and Saudi Airways. But it would be fair to say that the Indian authorities were far less generous with allotments than in the previous four years. Many of these carriers survive and thrive on Indian traffic to their hubs and then onward passage to other destinations.

In the meantime, a few things happened. Indian carriers have gotten stronger, are now carrying almost 45% of the country's international traffic and are gearing up to add more capacity. Both Air India and IndiGo are planning to increase their international footprint substantially and in due course should be in a position to increase this 45% and tilt the favour towards the Indian carriers. I see no reason why the government should not support this. Countries globally are quite possessive about their own traffic and treat it like family silver. There's no reason why India should be expected to be so generous. Just because someone is asking for something certainly does not mean we have to listen unless it's to our clear advantage to do so.

Should Airlines Moderate Air Fares?

Coming to the matter of higher fares, with a huge spurt in Indian upper and middle-class incomes, there is no dearth of fliers who can afford today's higher fares. The growing propensity among Indians to travel is backed by an ability to pay. Yes, a business class return ticket at Rs 3.5-4 lakh to the US might not be what the passenger wants to pay but pay they do, if they want to fly in reasonable comfort. There is no data or evidence to support the assertion or theory that prohibitive international airfares are impinging or driving down international demand to the best of my knowledge. Are the higher fares deterring or forcing people to drop proposed travel? I would argue not.

Further, a few years ago, when the domestic carriers had begun to fly to Malaysia and some other destinations in Southeast Asia, the director general of civil aviation (DGCA) had summoned AirAsia representatives in India to explain what the Indian carriers were terming "predatory pricing" by the carrier - fares so low that the Indian carriers could not match them and remain viable. So if indeed the Indian authorities are convinced that carriers - Indian or foreign - are charging international fares that are monopolistic or exploitative, there is no reason why they cannot summon individual or collective airlines and seek an explanation. If explanations can be sought for low fares, they can certainly be sought for overly high ones.

Moreover, more recently, the union civil aviation minister asked the domestic carriers to rein in fares when GoFirst withdrew capacity in the high season, leading to a spike in fares, especially on specific dates and routes. If the Indian carriers can be subject to scrutiny or be asked to moderate fares, so can the foreign ones. Conversely, if domestic carriers can be asked to moderate domestic fares, they can be asked to rein in international fares too.

Despite India's unique geographical location, the country's failure to develop its own metro airports as thriving hubs - a bus we have missed totally - has been one of Indian aviation's biggest failures and a matter of deep regret over the last two decades. As an Indian and a patriot, I would argue that we must do everything in our power to rectify this.