Air Fare Now Becomes Cheaper Than Rail Fare

An air ticket can sometimes be cheaper than a rail ticket !
The erstwhile gap between rail and air fares is progressively being reduced.

 

In case of Rajdhani, only the first 10% of berths are at current prices. The rest 90% will be sold at prices starting at 10 per cent higher than the base fare and ending at 50% cent more for 2AC and 40% for 3AC. That is, the Rajdhani fare may become greater than the air fare! 1AC Rajdhani fare is already more than a normal air fare. This decision of Indian Railways to introduce dynamic pricing for select premium trains appears to be encouraging more and more people to resort to air travel. However, low-priced air tickets that are seen are normally meant for very few seats while most of the seats are generally sold at higher rates as the journey date comes closer. This is what dynamic pricing is all about.

Travel times between Delhi and Patna –

By Train –

Normal Travel – 12 hrs by Rajdhani, and 13.5 hrs by Sampoorn Kranti. (Present Fastest Trains)
+ 0.5 hr minimum waiting time.

By Air –

Normal travel – 1.3 hrs
Reporting time – 2 hrs early

Clearly, 2AC rail and air fares are equivalent.

As part of reforms, despite an uproar over the move from the opposition, Indian Railways introduced dynamic pricing on premium trains.

Railways have later clarified that the model was introduced on an experimental basis and it will be reviewed after some time.

As per AirAsia India CEO Amar Abrol, “While air travel on some routes are cheaper than train ticket, people are unaware of it. However, the dynamic pricing of train tickets would definitely help low cost airlines to get more passengers.”

Can an Airline absorb ATF Price hike ?

Aviation Turbine Fuel (ATF) prices in India have increased by almost 9.2%. This is the fourth successive increase since March 2016. ATF has become costlier by over 35% in the past three months.

ATF Prices in India hiked
ATF Prices in India hiked. 

Crude: $/barrel

30.84 on 20 January 2016

49.69 on 1 June 2016

After the ATF price was hiked, shares of InterGlobe Aviation and Jet Airways fell by as much as 4 per cent.

Finance Minister Arun Jaitley had in his Budget for 2016-17 proposed a 0.5 per cent ‘Krishi Kalyan’ cess on all taxable services, which came into effect from June 1, 2016. With the government affecting such a steep hike in ATF prices, airlines may increase ticket prices.

download28129-1Significantly, it should be noted that India’s domestic air traffic market logged the fastest growth in the world for the 13th consecutive month in April. The market grew at 21.8% during the month as per the global airlines body International Air Transport Association (IATA).

This continuous high growth happened due to lower fuel prices and substantial increase in the number of flights operated by the domestic carriers. The lower ATF prices had been the game changer in India. It had acted as a catalyst for air traffic growth over the past few months, enabling people to take flights for their travels.

ATF accounts for nearly 40% of the operating costs of an airline. Analysts have warned that flying may get more costly if the Airlines start passing on this burden to the customers though no airline has commented on how the ATF price hike would impact air fares.airportfueling-kl9D--621x414@LiveMint

It is widely believed that the peak summer travel season lasts from mid-April to early July. It will be over in a month and most of the tickets for this period have already been sold. All airlines give discounts in order to increase sales in the lean July to early-September period. So airlines can pass on the higher cost of fuel on fares in the festive season when demand is anticipated to go up.

“Fare in the airline industry is not simply a function of input cost alone. Competition, price sensitivity of customers, and demand-supply balance are also significant drivers of airfare,” said Sanjiv Kapoor, Vistara’s chief strategy and chief commercial officer.

432526-sanjiv-kapoor-zeenewsWith oil prices rising, the real problem will be faced by airlines that have high cost structures and have been reporting operational profits or not making losses on the back of cheaper fuel.

Two airlines could, however, could remain immune to the rise in ATF prices. IndiGo has inducted the fuel-efficient Airbus A-320neo and GoAir is shortly going to induct A-320 neo. IndiGo will get 24 neos this fiscal, each of which burns up to 15% less fuel than the old generation single-aisle aeroplanes.

It takes a modicum of common sense that airlines with less overheads and fuel-efficient planes will be able to survive the ATF price rise, offer competitive fares and remain financially viable.297304-kolkata-airport

The problem will be for airlines with high cost structures, which will be forced by competition to match those fares. They could face troubles. This appears to be the nature of market dynamics here.

As per industry analysts, “Lower jet fuel price has acted as a stimulus for air traffic growth over the past few months, encouraging people to take flights for summer holiday travel. Increase in ATF price could lead to rise in airfares and decrease in demand as any increase in airfare will act as a dampener for travelers planning trips going forward.”