Study ticket pricing behaviour in Indian airline industry

Abstract

With the Indian economy booming, the standard of living in India is improving. The percapita consumption of products and services has increased tremendously over the last fewyears. Competition has increased with the opening of various sectors to private players.With the changing trends, Indian airline industry has also responded. The rising demand forair travel across country and outside, and the entry of private players like Jet Airways,Kingfisher, Indigo, Spice Jet, etc., in addition to government-run Indian, has resulted in risingcompetition which has made a significant impact on the prices of air tickets.According to international trade body airlines body, International Air Transport Association(IATA), India’s domestic air travel demand grew at 14% in June compared to last yearfigures, making it the second fastest in the world. India recorded second fastest growth rateafter Brazil, which reported a demand expansion of 15.1% in June1. The industry recorded aload factor of 78.3%, which is consistent with the global average of 79.4%2.It has been observed that the air ticket prices vary with the passenger load across differenttime slots in a day and routes (different set of origin-destination (O–D) combinations).The heavy traffic routes like Delhi-Mumbai have significant passenger volume for most ofthe time in a day and hence, the number of airlines operating between these routes isgreater in number. This results in competitive pricing of tickets on these routes. Similarly,the prices also vary across different times, for example, the morning and evening flightshaving greater passenger volume. To reap maximum benefits, the airlines explore attractivepricing opportunities. Mostly, the aircrafts employed on these routes are bigger to cater tothis heavy demand.On the other hand, for low traffic routes like Mumbai-Nagpur, very few airlines operate andhence, they set monopolistic prices. The aircrafts employed on these routes are smaller, soto cover the fixed cost of operations, the airlines charge exorbitant prices per ticket onthese routes. The airlines set different prices for the same distance on across differentroutes.For the same distance, the saturated domestic airline industry in the US shows far morevolatility in air ticket prices. The heavy competition in this market results into this kind oftrend in pricing behaviour.This implies that the price of an air ticket is a variable entity dependent on various factors.The objective of the project is to study the ticket pricing behaviour in Indian Airline Industry.Also, we aim to benchmark these on some of the parameters with saturated domestic airline ticket prices in the US.