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Airlines’ excess capacity problem to increase in 2020

International Air Transport Association (IATA) chief economist Brian Pearce said that the problem of capacity is set increase in calendar year 2020. While lower fares have made flying affordable in India, airlines have started to complain about excess capacity in the market that is leading to lower fares for passengers, impacting the bottom line of airlines.

, ET Bureau|
Dec 12, 2019, 07.45 AM IST
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The average return fare in 2019, before surcharges and taxes, is forecast to be 62% lower than in 1998.
GENEVA: Airlines across the globe and in India will continue to face overcapacity problem, further cramping their ability to charge higher for air tickets, which is currently 62% lower than in 1998.

International Air Transport Association (IATA) chief economist Brian Pearce said that the problem of capacity is set increase in calendar year 2020.

Data Pearce shared shows that airlines across the globe added 5.1% of the total fleet in 2019 and the number is set to increase by over 2 percentage points in 2020. The prediction is that airlines across the globe would add about 2,100 aircraft in 2020, which will be 7.5% of the total aircraft capacity in the world based on available seat kilometres (ASK).

“Increased capacity induction is set to keep fares stressed all across the globe,” Pearce said.

“Flying is becoming more affordable. The average return fare in 2019, before surcharges and taxes, is forecast to be 62% lower than in 1998, after adjusting for inflation,” IATA DG Alexandre de Juniac said in his speech.

This means that young people in emerging economies are exposed to travel opportunities that their parents could only have dreamed of at the same age, he added.

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While lower fares have made flying affordable in India, airlines have started to complain about excess capacity in the market that is leading to lower fares for passengers, impacting the bottom line of airlines. The rush by airlines to add planes and launch flights on slots vacated by Jet Airways has led to overcapacity in the Indian market, slashed fares and losses piling up for carriers.

According to the winter schedule, airlines have announced a high double-digit increase in capacity, filling the space created on key routes after Jet’s demise.

Overcapacity has kept fares under stress even during the festive season that sees an uptick in travel. While airlines complain about excess capacity, market leader IndiGo feels that there is no overcapacity in the Indian market and feels that the airline ‘does not have enough planes to add flights.’ IATA, however, forecast better numbers for the airline industry and says the global airline industry will produce a net profit of $29.3 billion in 2020, improved over a net profit of $25.9 billion expected in 2019 (revised downward from a $28 billion forecast in June). If achieved, 2020 will mark the industry’s eleventh consecutive year in the black.

The agency also adds that the profitability will be concentrated with the top 30 airlines and airlines in many regions will report losses or decline in numbers.

(The reporter is in Geneva at the invitation of IATA)
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