Fare Wars Wiping out Profits for Airlines in India

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The market for cheap air travel in India is booming, with two out of every three passengers flying in the country choosing budget airlines. However, this buyers’ market has led to intense fare wars and tumbling profits for carriers, leaving many questioning if carriers can find a sustainable and profitable way forward.

India is currently the world’s fastest-growing market for air travel, with experts predicting that it will become the third largest global market for aviation by the year 2025. This stratospheric growth since the government’s break-up of Indian Airlines’ monopoly in 1994 has meant cheap fares for budget travelers because of an increasingly competitive market driven by fare wars.

How cheap?

Bloomberg reports that in 2015, budget airline SpiceJet offered base fare prices as low as two cents. Vistara, which is Singapore Air‘s domestic airline in India, has dropped their fares by 40 percent over the last four years. These budget carriers have in turn forced full-service airlines like Jet Airways to discount their prices in order to stay competitive, cutting severely into the profit margins for carriers who still offer in-flight entertainment and meals. Jet Airways’ stock is down 66 percent in 2018 alone, and the airline has reported profits in only two of the past eleven years, leading some to wonder if its days are limited.

Jet Airways would be following in the steps of Kingfisher Airlines, which ceased operations in 2014, if it shut down.

Rahul Bhatia of InterGlobe Aviation Ltd., IndiGo’s operator, commented last month that these low fares are “not sustainable,” but that airlines have “no choice” in offering them. The market is red hot right now, at “46 consecutive months of double-digit passenger growth,” according to Asia Pacific’s Conrad Clifford. And with Qatar Airways potentially poised to enter the short-haul game, there seems to be no signs of this fare war ending any time soon.

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