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Air India raises fares, shifting pricing strategy

Air India raises fares, shifting pricing strategy
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First Published: Mon, Dec 05 2011. 11 01 PM IST

Aggressive pricing: Air India’s economy-class passengers can upgrade to business class by paying Rs 4,000 for distances up to 750km and Rs 6,000 for longer distances at the counters in 17 airports . B
Aggressive pricing: Air India’s economy-class passengers can upgrade to business class by paying Rs 4,000 for distances up to 750km and Rs 6,000 for longer distances at the counters in 17 airports . B
Updated: Mon, Dec 05 2011. 11 01 PM IST
New Delhi: In a respite for private airlines, state-run Air India Ltd has raised airfares to destinations within the country over the past one month, giving up an earlier strategy to regain market share by cutting ticket prices.
Aggressive pricing: Air India’s economy-class passengers can upgrade to business class by paying Rs 4,000 for distances up to 750km and Rs 6,000 for longer distances at the counters in 17 airports . By Hindustan Times
Air India has decided to increase fares and keep them at Rs 150 more than that of low-fare carriers on key sectors, according to a person familiar with the development and data from travel websites.
“The yield per segment has gone up by around 8-10% in the last one month,” said Sunny Sodhi, vice-president (air product) at travel firm Yatra Online Pvt. Ltd. Air India’s pricing strategy has helped the market but, being too late in the quarter it is unlikely to reflect very positively on the profitability of airlines in the three months to 31 December.
India’s three publicly traded airlines Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd lost a combined Rs 1,500 crore in the quarter ended 30 September owing to high fuel costs, the depreciating rupee and competitive pricing.
The airlines had sought Prime Minister Manmohan Singh’s intervention to help them out of the crisis led by “high ATF (aviation turbine fuel) increase in airport charges, particularly at privatized airports” and “uneconomic fare levels” in an 18 November letter.
“All airlines are increasing airfares,” said Sodhi, adding that “the airlines are looking at getting some recovery of the cost they are incurring. I don’t think this will take them into profits in Q3. There is only one month left. It may just help them look a little better”.
Air India was mostly selling tickets closer to the travel date at the same price as those offered for the same tickets that were booked 15 days in advance.
Most airline tickets in India are sold closer to the travel date, which is why airlines price the tickets higher for immediate travel and cheaper for travel booked well in advance.
But, till earlier last month, Air India was selling a Delhi-Mumbai economy class ticket for Rs 3,600 for bookings made for travelling the next day and about the same price when its booked a fortnight in advance.
Since Air India had the lowest fare on most sectors, there was little room for others to charge more, said a private airline official who declined to be named.
This meant airlines—both full service such as Jet Airways and budget carriers such as IndiGo—were all pricing their airfares closer to Air India’s rates or matching it.
This had led to fierce competition at a time when fuel prices were going up.
In informal talks earlier last month, Air India agreed to raise airfares, but keep its ticket prices at more than Rs 150 of those offered by budget airlines, said a person familiar with the matter, who declined to be named.
Air India operates more than 410 daily flights and connects 66 domestic destinations, where it commands a market share of about 17%.
The new strategy means next-day Air India tickets, which were going for Rs 3,600 for Delhi-Mumbai, are now sold for Rs 6,694, or Rs 152 cheaper, than budget carrier GoAir’s Rs 6,542, according to data from travel portal IxiGo.com. Jet is priced Rs 189 higher than Air India at Rs 6,542.
Searches on some other metro sectors also yielded similar results.
For Delhi-Bangalore, SpiceJet was priced at Rs 7,155, Air India at Rs 7,355, and Jet at Rs 9,005.
Flights to Chennai from Delhi were priced at Rs 7,143 on IndiGo and Rs 7,355 on Air India, or about Rs 212 more.
While Air India may have increased its airfares, the carrier still has the advantage of offering free food, in-flight entertainment systems and better seats while being close to the airfare of budget airlines that don’t offer such facilities, said the person familiar with the development.
To be sure, airfares follow dynamic pricing—as a flight fills up, the remaining seats become expensive.
A senior Air India official who declined to be named, said there was no “manipulation” and its aggressive pricing had started from June and not January and was in response to market conditions. “The market was not ready to pay more than that,” he said. The trigger point now “is the improved market conditions; there is a good market—all airlines are running full. Airfare prices always reflect the market”.
Air India’s economy class has a 75% occupancy rate and a new programme for business class upgrades aims to ensure the section in front is full as well. “If you can make Rs 4,000 more for an empty seat, why not? It’s a perishable commodity.”
Economy class passengers at 17 airports, including all the metros, can upgrade to business class by paying Rs 4,000 for distances up to 750km and Rs 6,000 for longer distances at the counter. The Air India official cited above maintained the change in pricing will not affect its revenue. “Our loads for October last year were 75%; this year it is 75.1%. And it’s only getting better,” the official said.
tarun.s@livemint.com
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First Published: Mon, Dec 05 2011. 11 01 PM IST