Impact of rising crude oil and airfares: Of those who were planning to undertake travel by flight this summer, 46% likely to either drop plans or take alternate mode of travel

March 7, 2022, New Delhi: The fast-escalating Russia- Ukraine war is already having ramifications with crude oil surpassing USD 135 per barrel and likely to continue going higher. Following the conflict, consumers on LocalCircles are reporting an increase of 30-60% in domestic and international airfares with similar reports emerging in the media.

The country’s domestic aviation industry has been severely impacted by the pandemic caused by the COVID outbreak in the last 2 years. Many families had to cancel their travel plans amid the surge of cases during both the 2nd and 3rd waves of the pandemic. As cases of COVID started to spread across the country from early December led by the arrival of the Omicron variant, the Government of India extended the suspension of international flights further. Following that, various states and union territories also announced restrictions in mid-December to limit the spread of COVID thereby making domestic travel even more challenging. Many who had travel booked during the months of January-March 2022 revisited their plans and a subset of them approached airlines and hotels for cancellations. The rapid rise in Omicron variant-led COVID cases also prompted some airlines to cut down capacity and as a result, some of them waived off ticket rescheduling fees and permitted them to rebook an alternate flight till March 31st, this year.

The recent LocalCircles survey released on February 23rd received over 20,000 responses from people residing in 321 districts of India, indicated that 59% of consumers were planning to travel during March to May though only 12% said they have made their bookings. In the aftermath of the Russia-Ukraine war and its concomitant effect on the aviation industry, LocalCircles has gone back to the citizenry to find out their travel plans during March-May and if the rising air fares are likely to impact them. The survey received 10,389 responses from consumers located in over 301 districts of the country. 62% respondents were men while 38% respondents were women. 49% respondents were from tier 1, 34% from tier 2 and 17% respondents were from tier 3, 4 and rural districts.

Of those who were planning to undertake travel by flight this summer, 46% likely to either drop plans or take alternate mode of travel

The question in the survey asked consumers, “Due to rising prices of crude oil, India-based airlines are likely to increase prices of tickets by up to 50%. With such an increase, do you still plan to travel during the summer months (March-May)?” In response, 14% of consumers said “yes, we have already booked our tickets and will travel as scheduled” while 26% said “Yes , will pay the higher fares and travel”. Breaking down the poll, 14% said “Not ticketing right now and will wait for prices to drop. If they don’t, will pay higher fare and travel”, 32% said “Not ticketing right now and will wait for prices to drop. If they don’t, will take alternate mode of travel”, and 14% said “Not ticketing right now and will wait for prices to drop. If they don’t, will not travel”. The findings suggest that of those consumers who were planning to undertake travel by flight during March-May, 40% will surely travel and another 14% may wait book their flights later and travel. The remaning 46% will either take alternate mode of travel or drop their travel plans all together. This survey received responses from 10,389 consumers.

In summary, the Russia-Ukraine war is having a direct impact on prices of crude oil which in turn is leading to rise in airfares for both international and domestic flights. The landscape has changed drastically within 2 weeks when in a LocalCircles survey, 59% consumers indicated that they had plans to travel this summer. With the rising airfares, 46% of the consumers who were planning air travel are likely to either take an alternate mode of travel or not travel at all while 14% are likely to wait for airfares to drop to book their travel. 26% of the consumers are likely to book it soon with high airfares and 14% of them have it already booked. With crude oil prices unlikely to retreat soon per most analysts, chances are airlines could see a drop of almost 40-50% in their revenues during the March-May period.