Budget airlines say proposed fare cuts too little to hurt them

Budget airlines say proposed fare cuts too little to hurt them
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First Published: Tue, Feb 27 2007. 12 59 AM IST
Updated: Tue, Feb 27 2007. 12 59 AM IST
The decision by Indian Railways to trim passenger fares by 2-8% is unlikely to force low-fare airlines to drop their fares, said several budget airline CEOs.
“They may have cut some fares marginally, but they really can’t cut travel time, which is the advantage we are offering over trains,” said G.R. Gopinath, chief executive officer of Air Deccan, India’s biggest low-cost carrier and one of the top three airlines in the country by market share.
Meanwhile, the proposed cuts are not deep enough to stop more people from flying, especially on longer routes such as Delhi to Mumbai, where a two-hour flight can replace a 17-hour train ride, said Siddhanta Sharma, the chairman of Spicejet, adding, “we find that as long as we maintain a reasonable premium of about 15% over train tickets, a lot of people decide to fly.”
In their annual Budget, the railways estimated that earnings from passenger fares are expected to reach Rs20,075 crore during 2007-08 compared with Rs17,400 crore in the previous fiscal, with traffic expected to go up by 5.8% to touch 660 crore, up from an estimated 624 crore passengers in 2006-07. Railways expects growth in earnings from passenger fares to hover around 15.39% in 2007-08.
The price difference between rail and plane tickets is not easy to pin down—airline prices vary considerably depending on seasons, days of the week, and how far in advance the ticket is purchased. But during lean seasons, the same time when the rail ticket price cuts are the deepest, airlines giveaway hundreds of thousands of seats at deep discounts, so that the price difference between a train ticket and judiciously purchased plane ticket could be less than Rs600.
On Sunday, for instance, a train ticket on the Rajdhani between Delhi and Mumbai was about Rs1,453, factoring in a proposed 3% price cut. A plane ticket on GoAir for the same trip was selling for Rs2,150.
“Look, if it’s only Rs800 to save 15-16 hours, I think many passengers would obviously choose to fly,” said Jatin Mehra, a 28-year-old who was buying a train ticket at a travel agent in Connaught Place. “If it saves you that much time, it’s probably worth it.
Mehra, who has never flown before, says he is considering flying on his next trip to Chennai. Mehra is the kind of person that Air Deccan’s Gopinath has staked his airline’s entire philosophy on—train passengers who are willing to pay a little more for the efficiencies of flying.
“Even if I take away 5% of the train passengers over the next five years, I will havesucceeded,” he said. Almost half of Deccan’s 5.6 million passengers in 2006 were first-time fliers.
All of India’s airlines flew a combined total of just under 25 million passengers in 2006, while 21 million passengers bought tickets in three-tier air conditioned coaches. While railways is losing some passengers for good, it is also finding that as incomes improve, more people are willing to pay extra and travel in air-conditioned trains.
“A phenomenal number of people have switched from sleeper class to third AC,” said a railway official, who didn’t want to be named. “This shows that middle-class passengers are increasingly in a position to shell out around double the charge of a sleeper ticket, and travel in an air conditioned coach.”
Often though, plane tickets, even on budget carriers, can cost twice or even thrice that of a train ticket.
Airlines in India find they can fill their planes if they sell some of their tickets at lower prices, thus attracting the train passenger, and the rest of their tickets at incremental increases, selling to the habitual airline passenger.
Sagar Malviya and K.P. Narayana Kumar contributed to this story
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First Published: Tue, Feb 27 2007. 12 59 AM IST
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