Airlines need to hike last-minute fares to break even: CAPA

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An estimate worked out by a global aviation consultancy firm, Centre for Asia Pacific Aviation (CAPA), states that the average break-even fares for airlines post-lockdown will see an increase of 40-100% in the second quarter of this fiscal.

The increase in fares will be due to certain seats being kept empty to adhere to social distancing norms and increased sanitation requirements, said the report.

The report states that a low-cost airline will have to price its last-minute Delhi-Mumbai ticket at Rs 22,700 in order to recover the added costs.

But due to poor demand, airlines will find it difficult to even sell at an average last-minute fare of Rs 7,000 in the second quarter.

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For the airline sector, the second quarter, which has always been an acid test, will be a make-or-break period this year, said the CAPA report.

The report has listed the reasons why the average break-even fares would increase by 40-100%. As per the Bureau of Civil Aviation Security requirements, the middle seats and the last three rows will need to be kept empty.

Hence an airline can sell a maximum of 108 seats on a 180-seat aircraft, which is 60% of its capacity. The airline will also have to bear the added cost increased aircraft turn-around time on ground due to new sanitation requirements and need to maintain social distancing during boarding and disembarking.

An indicative profile of low-cost carrier bookings on Delhi-Mumbai route indicated that 30% of seats are sold more than 15 days prior to departure at an average of Rs 3,500 per seat; 40% of seats are sold between 7 and 15 days prior at around Rs 4,500; 30% of seats are sold less than 7 days prior to departure at an average fare of around Rs 7,000, which could increase up to Rs 10,000 for last-minute passengers.

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“If a similar profile is applied with social distancing in place, where 30% of seats are sold at an average of Rs 3,500, and 40% at Rs 4,500, then the average fare to be charged to the remaining passengers will be significantly higher,” said CAPA.

If there are only 108 seats available for sale, the 30% last-minute bookings would have to be priced at an average fare of Rs 13,900 to break even. “If daily aircraft utilization declines from 11 hours to 8 hours, this rate will increase to Rs 22,700,’’ it said.

The report also said that airlines would find it difficult to sell even an average last-minute fare of Rs 7,000 in Q2 given the weakened state of demand.

Since these are highly uncertain times, the CAPA estimate comes with a caveat that the numbers might be revised in the future. The calculation does not take into account the fixed costs that airlines would incur, as initially a sizeable proportion of the fleet is likely to remain on the ground due to weak demand.

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“Some carriers may lose less money by remaining grounded,” the report said. CAPA has revised downward its traffic estimates for FY2021 to 55-70 million domestic and 20-27 million international passengers, the report said.

The total estimated operational fleet would be 345-395 aircraft as compared to the pre-Covid fleet of around 650 aircraft, which would result in a surplus of 255-305 aircraft.

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Manish Khandelwal
Manish Khandelwal

Manish Khandelwal, a travel-tech enthusiast with over a decade of experience in the travel industry. Founder and Editor-in-Chief of Travelobiz.com, he's passionate about writing.

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