Rising fares may ground fliers

Among all the sectors of the economy that were crippled by the pandemic transport was one of the worst affected. In the transport sector, airlines was one of the most severely-hit. The airlines industry is estimated to have posted loss of over Rs 21,000 crore according to credit rating agency Icra. To address the travails of the sector that was supposed to enjoy the tailwinds of the India growth story and a buoyant middle class, the government has agreed on a 12.5% rise on an average in the airfare slabs that is supposed to boost revenues and cover the airlines for some of the losses that it was incurring.

While that seems fine on paper, there are disturbing questions from the consumer end. The rise of 12.5% is steep to say the least. Ironically, the move to save the airlines might not be in the best interest of the passengers, who could find the fares a bit too high, and thereby end up hurting the interest of the beleaguered airlines. Revenues will rise only when there are adequate passengers and to get them in sufficient numbers moderation of tariff is needed. This is all the more applicable when the middle class is financially stressed from a variety of factors such as job losses and reduced incomes.

Poor consumer confidence and a decline in discretionary spending are obstacles to the path of aggregate demand rising in the economy. While this might impact the individual holiday tourist, the new-found effectiveness of remote working and meetings by India Inc might also affect the number of business travellers. If a third wave, described as inevitable and imminent, inundates us, even partially, restrictions will again hurt the industry badly. Therefore, it remains to be seen how much the rise in tariff actually helps the airlines in posting improved toplines and bottomlines. There cannot any revival without the active participation of the fliers in larger numbers. For the airlines this is the beginning of a new challenge.