Number of passengers grew over 22%, thanks to low airfares due to cashban

All thanks to demonetisation, airlines saw a steep decline of 35% in average domestic fares as the cash ban took away their pricing power at a time when they were also adding capacity.

As per the data by Yatra.com, average domestic fares from November 1, 2016 to January 31 this year declined on key domestic routes compared with a year earlier.

The cash ban took out about 85% of the total cash in circulation. This led to consumers holding their hands while spending as ATMs were out of cash. The weak sentiment, airlines said, rubbed off on their performance.

IndiGo, the local market leader, blamed the "impact on consumer spending and behaviour, from demonetisation for the fall in fares.

"The monetisation policy went into effect on November 8 and for the full month of November, our yields were down 20% and in December our yields were down 17%. The situation, though, is improving. In January, the yield decline was smaller at about 10%. "Based on the January 2017 yield forecast, we are hopeful that the effects of demonetisation are largely behind us,” IndiGo chief financial officer Rohit Philip said.

Many expected this would insulate the industry from demonetisation effect. But lastminute travel, where a chunk of payments was still in cash, took a hit as a result of liquidity crunch, hurting the pricing power of airlines, said experts.

"Our pricing power was gone, may be, because a lot of last-minute ticket bookers - corporate travellers including from small and medium enterprises - postponed or cancelled their travel,” a senior executive at a full-service carrier, who didn't want to be identified, told ET.

The executive, too, reported an improvement in January, after "a sharp dip in average fares during November and December,.

Travel industry insiders see another reason for the impact on fares. Airlines added capacity in recent months, which led to a demand-supply mismatch.

"We believe that declining average fares are driven more by the capacity addition by airlines. The number of domestic passengers has increased by a very healthy 23% over last year despite demonetisation, which means it never had a major impact on the aviation sector,” Sharat Dhall, chief operating officer (B2C), at Yatra.com., told ET.

Notably, the number of air passengers grew in double digits despite the note ban, by 22.45% and 23.91% in November and December, respectively.