Airfares in India see sharp rise in last few months; MAX planes grounding worsens situation

Airfares in India have been rising in the last few months due to tight supply and the situation has worsened with the grounding of Boeing 737 MAX planes, according to a Fitch report. Fitch Ratings also said the impact of the grounding of 737 MAX aircraft on airline operations and airfares in Asia has been largely muted so far, but could worsen from the second quarter of this year due to a seasonal pick-up in travel demand. Jet Airways grounding planes due to financial woes, SpiceJet suspending operations of its 737 MAX planes and IndiGo curtailing flights during the period from mid-February to March have adversely impacted overall capacity in terms of traffic demand.

Low cost carrier SpiceJet, Indonesia's Lion Air and Singapore's SilkAir are among the Asian airlines that have grounded 737 MAX planes following a deadly crash of the aircraft in Ethiopia that killed 157 people last month. "The Indian aviation market, however, has seen a sharp increase in airfares in the last few months due to tight supply, which has been worsened by the suspension of the 737 MAX," Fitch said in the report on Friday. Against this backdrop, Fitch said it expects growth in Revenue Passenger Kilometres (RPK) to weaken further until supply increases.

RPK, a measure of passenger traffic, decelerated to 12.4 per cent in January, it added.

The report noted that Jet Airways, which along with its subsidiary Jet Lite had the second-largest share of the domestic market until January 2019, has been steadily losing market share as it has been forced to shrink its operating fleet due to financial troubles. "Market leader IndiGo cancelled around 30 flights per day (2 per cent of total) from around the middle of February until March, with industry participants highlighting pilot shortage as a key reason.

"SpiceJet was then forced to ground its 737 MAX jets, which form around 15 per cent of its fleet," Fitch said.

Airlines that do not rely on 737 MAX planes may benefit as competitors struggle to replace their grounded fleet with other models, for which leasing rates are likely to increase, pushing airfares upwards, it added. Further, the report, dated April 4, said 737 MAX planes are an important part of the fleet expansion strategy of several airlines, such as Lion Air, SpiceJet and VietJet Air, in the growing markets of Asia.