Jet Airways slashes fares, eyes Rs.600 cr cash buffer

Airline slashes domestic fares on two million seats by more than half for travel through the year
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First Published: Tue, Feb 19 2013. 10 30 AM IST
Jet Airways’ sale will require passengers to book tickets between 19-24 February for any domestic flights up to 31 December. Photo: Abhijit Bhatlekar/Mint
Jet Airways’ sale will require passengers to book tickets between 19-24 February for any domestic flights up to 31 December. Photo: Abhijit Bhatlekar/Mint
Updated: Wed, Feb 20 2013. 12 24 AM IST
New Delhi: Jet Airways (India) Ltd, India’s second largest airline by passengers flown, on Tuesday slashed domestic airfares on two million seats by more than half for travel through the year, seeking to attract passengers away from rivals and raise an immediate cash buffer of up to Rs.600 crore.
The move, which analysts said could prove expensive for the airline, came after a potential investment of up to $330 million (around Rs.1,800 crore) by Etihad Airways PJSC into Jet Airways for a $24% stake ran into an unexpected snag that may force a deal to be put off until after the next fiscal year starts on 1 April.
Jet Airways said passengers will need to book their tickets by 24 February to avail of the discount.
“We have come up with a nationwide sale of unbelievable low fares on Jet Airways...(for the) first time in history,” Jet Airways said in a message to travel agents seen by Mint.
The six-day sale starting on Tuesday offered economy tickets priced at Rs.2,250 to Rs.3,800 depending on the route length compared with regular fares of between Rs.5,000 and Rs.8,000.
In January, low-fare airline SpiceJet Ltd cut prices by more than half on one million tickets for travel between February and April—considered the leanest season for air travel in India.
A foreign airline executive who tracks India closely said on condition of anonymity that both Jet Airways and SpiceJet risked getting hurt.
“The only one thing that Jet can now achieve is use its capacity supremacy to hurt SpiceJet,” this executive said in an email response. “It will not do much for Jet, in fact it will hurt Jet too... They lost the first-mover advantage (on discounts) and this move is merely reactive. All they are hoping for is that this will hurt SpiceJet more than them (because they have a better product and reach, customer will choose them if price is equal).”
On an average fare of Rs.3,000, by selling two million tickets, Jet would be able to garner some Rs.600 crore, which would serve as a cash buffer, said Mohan Ranganathan, an aviation expert and safety consultant.
“They must be needing cash desperately as this will generate a huge interest-free amount. With the deadline up to the end of the year, they would have wiped out competition for the Diwali-Christmas season. The goose that lays the golden eggs for the year-end is dead for the others,” he said. “In the bargain, they will kill others and commit harakiri. Absolute suicide.”
Ranganathan said the cost of flying two million passengers at half price will be steep. The cost of fuel alone for ferrying those passengers will be Rs.470 crore at the current price, and Jet, being a full-service airline, will also have to bear the cost of onboard services that may amount to much more than the Rs.130 crore that will be remaining, he said.
Jet Airways has been in talks with Etihad for a stake sale that has been delayed by concerns at the United Arab Emirates airline that it may be forced to jettison the holding if there’s a policy reversal by the Indian government, Mint reported on Tuesday, citing two aviation ministry officials who didn’t want to be identified.
The travel industry welcomed Jet’s move to offer discounted fares. Some rival airlines were forced to match Jet’s fare cuts.
“Such tactics are a good idea to stimulate demand, especially when done with higher advance purchase windows,” said Keyur Joshi, chief commercial officer at online travel firm MakeMyTrip.com.
Globally, airlines charge very steep fares for tickets booked for immediate travel—like the coming week—but offer very cheap tickets booked months in advance. Indian airlines don’t follow the practice of offering very cheap fares for future travel and the cost of immediate bookings is also not as steep as it is overseas.
“The demand in India is far more than supply,” Joshi said, adding that IndiGo, GoAir and SpiceJet responded to the Jet’s offer by matching the price cut. Air India Ltd didn’t react.
Following the discounts, one-way tickets on Jet from Mumbai to Ahmedabad, Mangalore, Hyderabad, Nagpur and Bhopal are priced at Rs.2,250; to Bangalore, Raipur, Coimbatore and Jaipur at Rs.2,850; to Chandigarh, Delhi, Bhubaneswar and Visakhapatnam at Rs.3,300; and to Kolkata at Rs.3,800.
Jet operates 450 daily flights across 57 cities.
Jet Airways shares rose 3.25% on Tuesday to end at Rs.589.30 each on BSE on a day the Sensex ended at 19,635.72 points, up 0.69%. SpiceJet shares rose 2% to Rs.41.35.
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First Published: Tue, Feb 19 2013. 10 30 AM IST
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