What's making air fares soar this summer season? Not enough aircraft

Airlines in India are facing a slew of supply chain and engine issues related to their aircraft. And these issues have led to a very unwelcome fallout for customers: higher airfares.

Travellers will have to shell out more this year for their summer travel as a significant portion of Indian airlines' operational fleets is expected to be grounded in 2024.

The single biggest challenge for travellers due to supply-related issues airlines are facing is cost of air travel increasing by 15 percent over 2023, said Prahlad Krishnamurthi, chief business officer, Cleartrip.

"One of the immediate effects of less supply is that fares are 15 percent higher for domestic travel. It was higher in March this year over the same period last year and will continue to be up in April this year. However, airfares in May will be the same as in 2023 when Go First (previously known as GoAir) had halted operations and had filed for voluntary bankruptcy in May last year," he added.

Ticket prices are skyrocketing because of capacity constraints, said Arun Bagaria, co-founder, TravClan, a business-to-business (B2B) platform for travel agents.

Supply chain challenges

Krishnamurthi said that there are a lot of ongoing supply chain and engine issues. "The supply outlook that the airlines had based on the orders they had placed, they are missing that outlook. While IndiGo is trying to lease more aircraft, it has not compensated for the loss (of grounded aircraft) over the last three months," he pointed out.

India's largest airline IndiGo has plans to lease as many as 20 aircraft from April to partly make up for capacity lost due to the grounding of over 70 planes in its fleet, according to a Moneycontrol report earlier this year.

However, even as the expected supply in December (2023), January and February this year came in, more and more aircrafts were getting grounded, Krishnamurthi noted.

The Indian aviation industry has been facing supply chain challenges and issues of engine failures for the Pratt and Whitney (P&W) engines supplied to various airlines, said brokerage firm ICRA adding that aviation giant Boeing is grappling with issues related to its 737 Max aircraft.

The supply chain impact is more this year because of the engine issues. "After May there was a huge hit in terms of supply because of Go First going down. Overall, it's worse than last year," Krishnamurthi added.

"In FY24, Go Airlines (India) Limited grounded half of its fleet due to faulty P&W engines, which led to the stalling of its operations. InterGlobe Aviation Limited (IndiGo) had also grounded 70-plus aircraft due to P&W engine issues, as on February 2, 2024, including due to a powder metal (used to manufacture certain engine parts) contamination issue with its P&W fleet. It is estimated that 24-26 percent of the total fleet of Indian airlines in operations will be grounded by March 31, 2024. Considering the bulk recall of the engines globally by P&W and other existing issues with the OEM’s (original equipment manufacturer) engines, the testing by P&W is likely to take longer at 250-300 days," ICRA noted.

Overall industry capacity measured by Available Seat kilometres or ASKMs has been impacted due to the engine failures and supply chain challenges, Suprio Banerjee, vice president and sector head for corporate ratings, ICRA, said in a note.

Cleartrip's Krishnamurthi does not think that supply chain-related challenges will ease for another two quarters. He added that had it not been for the capacity constraint challenge and if new supply had come in then airfares would not have increased.

Demand versus supply

Fares are high but demand remains strong with domestic demand higher by 7 percent and the number of people flying internationally is 15 percent more than last year, according to Cleartrip data.

While top airlines including IndiGo and Air India are expected to add more number of fleet, experts say that the new planes will not be enough to cater to the growing demand, as per a report.

Making travel smooth

In a scenario of soaring demand during the peak summer travel season while supply remains restricted, there are certain things travellers can do to alleviate their pain.

To make things easier on the pocket, Krishnamurthi recommended the early bird approach. "Make bookings at least 1 to 1.5 weeks in advance. If you are uncertain about travel dates, then use flexible options," he advised.

The sentiment towards travel has not tapered off, which is why online travel platforms like Cleartrip are pushing the option of EMI (equated monthly instalment) and BNPL (also buy now, pay later) models.

"EMIs, BNPL, these instruments have not penetrated the travel industry. We are pushing the adoption of these instruments so that the payment is phased. The adoption of these instruments that we are seeing on our platform is 10 percent. The industry is sitting at 2 percent. This (adoption of EMIs, BNPL) has been slowly increasing but it has been increasing more because of higher airfares. Towards the beginning of March itself we have seen an uptick for these instruments over last year and this will continue in April. Earlier we saw 5-7 percent adoption and now we are seeing 10 percent," he added.