If you have flown domestically in the last six months, there’s a high possibility that exorbitance of flight fares would have surprised you. The disruptions brought about by Covid had a catastrophic impact on India’s airline industry. Safety concerns significantly reduced flight travel, resulting in a 28.2 per cent drop in demand from 2019 to 2021, leading to huge losses for airline companies.
To manage expenses during this time, leading domestic airline operators were forced to lay off almost 8,000 workers and 13,300 ground handling staff, impose salary cuts as well as leave without pay.
The government also stepped in to protect financially weaker airlines by placing lower price caps on fares, while simultaneously putting a price ceiling to protect travelers from skyrocketing fares.
Just when it seemed like the worst after shock on the industry had passed, the emergence of the Russia-Ukraine crisis wreaked havoc on global oil prices.
It took over six months since the start of the war for the prices of aviation turbine fuel (ATF) to go down. Additionally, in December 2022, the government reduced the windfall tax on ATF from ₹5 per liter to ₹1.5 per liter which should have ideally been accompanied by a return to normalcy in flight fares. However, this is far from what happened.
Now, nation-wide vaccinations have reduced the threat of the pandemic, business is back as usual, and pre-pandemic normalcy has largely been restored. Domestic air traffic has regained momentum and is expected to reach around 97 per cent of pre-Covid levels by the end of this fiscal.
Despite these developments, domestic air travel continues to be unaffordable, and the population most impacted is India’s middle class.
The late 2000s witnessed the ushering of affordable air travel in India. Players such as IndiGo, SpiceJet, GoAir, among other key entrants, all wanted a share of this booming sector due to the nation’s rising middle-class population and its untapped potential. This transformed air travel in India from a luxury to something that could be affordable for the common man.
People’s increased adoption of air travel also led to the rise of several ancillary sectors such as leisure tourism, which also became a part of India’s growth story.
The Modi government is also betting heavily on air travel, with the number of operational airports in India doubling from 74 in 2014 to over 140 in 2022, and ambitious future plans of increasing them to 220 by 2028. However, sky-high fares might prove to be a hurdle in effectively realizing the government’s goals.
In August 2022, the government removed the price cap on airfare, giving airline companies the flexibility to set their own prices.
What did this result in? A round trip flight from Mumbai to Delhi that used to cost ₹7,000 pre-pandemic if booked a month in advance now costs almost ₹10,000 even during lean season, and as much ₹15,000 during peak season.
This has forced a significant number of people to resort to more economical modes for long distance travel, such as trains and buses. But their relative inconvenience compared to air travel has deterred many people from leisure travel altogether.
Restricted travel does not only curtail individual mobility, but also affects domestic tourism and the hospitality sector.
Union Budget 2023-24 announced the establishment of 50 additional airports for improving regional air connectivity.
Yet, no provisions were made towards making air travel economical for mass adoption. Connectivity must go hand-in-hand with affordability. This signals a need for concerted efforts on the part of multiple stakeholders, including the government and airline operators, to reduce costs so that air travel can reach new heights. Too many ancillary industries are dependent on the growth of this sector and a positive change in this regard would have a spillover effect, opening up new avenues for India’s development.
Samiha is a part of the Social Impact team at Deloitte India, and Divyajyoti is a part of the Public Policy team at MSL Group