2024/12/04 18:01 pm
The Indian aviation industry is expected to register a Y-o-Y growth of 7-10%. As per the rating agency ICRA, the domestic air passenger traffic has increased by 164-170 million in FY2025. During the first half of FY 2025, domestic air passenger traffic increased by 79.3 million registering a Y-o-Y growth of 5.3%. The international passenger traffic growth for Indian carriers expanded to 16.2% in FY2025. This rate is expected to continue throughout the second part of FY2025. The fleet size has doubled from 400 aircraft in 2014 to 813 in 2024. The number of airports has increased from 74 in 2014 to 157 in 2024.
With the growth of the Civil Aviation Industry, the monumental airfare had been a bone of contention among the majority of air travellers. As the festive season of December is approaching there is a notable spike in air tickets.
Deregulation of airfares
Indian Civil Aviation Industry is one of the fastest-growing networks in the world. Airfare was earlier regulated by the Air Corporations Act 1953. The central government was responsible for airfares, freight rates and other charges. In 1975, rule 135B of Aircraft Rules, 1937 on changes in tariff of fares, rates and charges and production of records was introduced. It maintained the provisions that no fares, rates, charges, regulations, or practices, could be changed without prior approval of the Director General. In March 1994, the Air Corporations Act 1953 was repealed. The Indian Domestic Aviation sector was deregulated and the airlines had the freedom to fix airfares. This is a global practice in the civil aviation sector. Prices are dynamic based on market demand.
Amendment to Rule 135 of the Aircraft Rules 1937 on 16th April 2009 serves as the basis of the legislation of airfares. The airlines shall establish a tariff, keeping in mind factors such as reasonable profit, besides the cost of operation, characteristics of service and generally prevailing tariff, to rationalize airfares despite its deregulation.
The Director General of Civil Aviation has established a Tariff Monitoring Unit to oversee airfare compliance. This unit randomly checks airfares on select domestic routes monthly to ensure they remain within a declared range.
Airfares in India
Airfares in domestic metro cities in the last week of 2024 range from the lowest Rs. 3,800 for a Mumbai-Delhi flight to the highest Rs. 20,176 for a Mumbai-Kochi flight. The average airfare for the Delhi to Goa route for the Christmas and New Year period stood at Rs 9,301. The Delhi-Goa route is the most popular during that period.
Airfares in international routes for Toronto-New Delhi range between Rs.1,68,970 to Rs 4,27,823. London-New Delhi ranges between Rs 81,757 to Rs 3,42,772. The highest airfare for the same period is in the Mumbai-London route at Rs 4,94,031 and the lowest is in the Mumbai-Dubai route at Rs 18,683.
Airline's cost structures are typically based on two key components aviation turbine fuel prices and the INR-USD exchange rates. The average ATF prices eased by 6.8% Rs. 96,192/KL in 8M FY2025, but far higher than Rs. 65,261/KL of the pre-covid period (8M FY2020). Fuel costs account for 30-40% of the airline's expenses while 35-50% is airline operating expenses.
“The spread between revenue per available seat kilometre and cost per available seat kilometre (RASK-CASK) saw some moderation in H1 FY2025 over FY2024 due to higher fuel prices and overall increased costs amid grounding of aircraft, while yields moderated marginally as airlines strove to maintain adequate passenger load factors (PLFs). Nonetheless, the same is expected to pick up in H2 FY2025, amid healthy passenger traffic. The industry debt metrics in FY2025 are expected to remain stable, with interest coverage of 1.5-2.0x times.” said senior vice president Kinjal Shah of ICRA.
Bhartiya Vayuyan Vidheyak
The old Aircraft Act will be replaced by the Bharatiya Vayuyan Vidheyak, 2024. It was passed in Lok Sabha already during August sessions, it is up for debate in Rajya Sabha now. The bill is a further attempt to deregulate the aviation industry to bring it to international standards.
The new bill seeks to resolve the anomalies and provide a comprehensive legal framework. It includes provisions for designs and manufacturing. It established an appeal system to ensure accountability and fair adjudication. It also provides for legal support to aviation regulation and aims to attract foreign direct investment.