India, where air traffic demand continues to rise, concerns about the trajectory of airfare prices have become a hot topic. Many consumers and industry stakeholders are calling for more affordable air travel, but according to IATA Chief Economist Marie Owens Thomsen, airlines have little power over the prices they pay or the prices they charge.
Thomsen, in a recent interview, highlighted that airlines are essentially “price takers” in the global aviation market. This means they have no influence on the costs of key inputs like jet fuel or aircraft, which are controlled by a few dominant players. “There are too few aircraft manufacturers and oil companies,” Thomsen said. “Whatever supplies we are looking at upstream, we are price takers, and downstream, we have a hyper-competitive environment where all customers can see all fares at all times. So, we always compete on price.” In such a competitive environment, airlines are squeezed from both ends. They must purchase expensive inputs like jet fuel, which currently makes up about 30% of their operating costs, and yet, due to intense competition, they cannot freely adjust ticket prices without fear of losing customers to cheaper alternatives. This dynamic leaves little room for airlines to significantly raise profits. According to a recent IATA study, although airfares have risen, they have not kept pace with inflation, especially when compared to the soaring cost of jet fuel. “Air ticket prices have not fully kept up with inflation,” the study revealed. “Jet fuel costs have significantly outpaced consumer inflation.” Despite higher ticket prices, the per-passenger profit remains relatively low.
Thomsen further explained that administrative costs, which make up a substantial portion of the airline industry’s expenses, also contribute to the slim profit margins. If airlines were making substantial profits from ticket prices, the per-passenger profit would be much higher. “The money is going somewhere else,” she said, emphasizing that many of the airline’s costs are tied to services and administration, rather than profit-making. For passengers, the situation means that while airlines would like to lower fares, external factors, including the price of fuel and aircraft, make it difficult for them to do so. While the industry continues to grow in India, these structural challenges may keep airfare prices from dropping as quickly as many would like, highlighting the complex realities behind the cost of air travel. As the demand for air travel continues to soar in India, the path to affordable airfare may not be as straightforward as many passengers hope. Airlines, caught between rising operational costs and fierce price competition, remain price takers with limited ability to control their prices.
