Starting this April, airfares are set to rise considerably. Rising demand has propelled airlines to increase fares. This is especially so since the troubled airline Kingfisher has cut flights and lowered its capacity. To top it all, increase in service tax by the government means that this will be passed on to passengers. It must be noted that Indian carriers are likely to post a combined loss of US$ 2.5 bn FY12. Hence, they need to raise fares to return to profitability and cut debt. The gradual exit of Kingfisher will also play a role in bolstering the fortunes of other carriers. For instance, before Kingfisher ran into financial trouble, about 230,000 airline seats were available daily in the local market and about 175,000 passengers were flying. However, Kingfisher reduced its fleet to 16 from 66 in November. So, at least 30,000 airline seats have disappeared from the inventory. This improves the occupancy level, giving airlines the leverage to raise fares. That said, over a period of time if fares sustain at higher levels, demand is bound to come down. In such a scenario, whether airlines will be able to improve profitability remains to be seen.
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