Airfares will rise as tight supply chain drags airlines down

What is Supply Chain Issue?

Aircraft and engine manufacturers are facing difficulties in sourcing raw materials and components. The effects of the pandemic and the Russo-Ukraine War slowed production of aircraft, engines and components. The war has severely affected the production and supply of major metals and alloys. Before the conflict, Russia was a major supplier of titanium to original equipment manufacturers in aviation, and Ukraine was a significant source of titanium ore. Companies are trying to find ways to meet demand and deliveries of aircraft, engines and components are getting delayed due to long periods.

Which airlines are affected?

Every airline is affected to some degree; But at present, Indigo and GoFirst are mainly bearing the brunt. IndiGo, India’s largest airline with 58% market share, has grounded over 30 aircraft, which account for over 11% of its fleet. GoFirst, which has about 8% market share, has grounded more than 25 planes, or about 47% of its fleet, for at least seven days, a Mint analysis of Flightradar24 data showed. Air India has drawn up a 15-month plan to lease 30 aircraft to meet the immediate capacity requirement. Vistara recently faced delays in the delivery of its wide-body Boeing 787 leased.

What is the effect on operations?

Cases of sudden cancellations by airlines have increased. Some are even temporarily pulling out of routes to accommodate with available capacity. GoFirst recently halted Delhi-Male flights till December 4. Travel agents have also noticed an increase in last-minute chaos in flight times and delays. Analysts expect more such cases on low-traction routes to emerge tentatively.

Will this put pressure on airfares?

Analysts and industry experts say rising travel demand and issues with capacity deployment due to a shortage of parts will put pressure on airfares during the peak travel season in December. Online travel operator Cleartrip has seen an increase of around 6% in airfares for the current quarter from September. For December 21-31, rival Ixigo saw a 44% increase in airfares for the Bengaluru-Kolkata route. The curb on capacity is also visible in the winter schedule, where GoFirst is approved to operate 1,390 flight departures per week, a 40% drop from 2019.

When will this be resolved?

Industry experts say it will take at least a year to get the supply chain back on track as global airlines will take 1-2 years to find long-term solutions to localize manufacturing and reduce dependence on sourcing raw materials. Airlines are evaluating options, including slowing redistribution through lease extensions, re-introducing aircraft into the fleet, and wet leasing. Air India, Vistara, Indigo and SpiceJet have already opted for aircraft leasing. But relief is expected only after 2023.