High oil prices, growth to keep airfares expensive

Air passengers will continue paying through their nose as airfares are likely to remain high this season on account of economic growth and high oil prices in the country, says a global financial company report.

According to the 'American Express Business Travel Monitor' which tracks and analyses published airfares on a quarterly basis, 'although fares moderated in the fourth quarter, the influences of rising oil prices and economic growth in the region are too strong to keep prices steady'.

"With businesses in India saying they expect to spend more on business travel in the next twelve months, fares will continue to be pressured upwards," the study said.

American Express said that a number of factors are contributing to these price increases.

One factor being taxes. It said that at times, the tax component, including the fuel surcharges, could be as high as 60-70 per cent of the total ticket cost.

This trend is more evident on domestic trips.

"Strong growth fundamentals like fast labour force growth and a rapidly expanding middle class will ensure a steady growth for demand of business and leisure air travel in India," Sandeep Shastri, vice president and general manager of Global Business Travel in India said.

Further, the scenario would prevail in the Asia-Pacific, which experienced strong year-on-year growth in the first quarter of 2011

due to rising demand, capacity discipline by the airlines, and rising oil prices, the study added.

According to another recent survey, 66 per cent of senior finance executives at some of the largest companies in the India expect to spend more on business travel this year.

Travel is also more likely to increase in the India and the Asia-Pacific region when compared with more established economies of Europe and North America.

"Companies should allocate 30-35 per cent on top of base fares for total expected airfare costs when planning budgets for 2011-2012 as the tax structure in India's airline industry is unlikely to change in the foreseeable future," Shastri said.

Almost 62 per cent of regional businesses say they will spend more on travel to meet new clients while 54 per cent report they will ramp up international travel.

"These demand conditions point to a further strengthening of airfares," it concluded.