IndiGo, SpiceJet and GoAir cut fares by 30%

IndiGo, SpiceJet and GoAir cut fares by 30%
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First Published: Thu, Feb 19 2009. 12 36 AM IST

 Fare wars: Aggressive sales by full-service rivals were among the reasons for the low-cost carriers to cut prices.
Fare wars: Aggressive sales by full-service rivals were among the reasons for the low-cost carriers to cut prices.
Updated: Thu, Feb 19 2009. 09 58 AM IST
New Delhi: A mere 12 days after they significantly increased fares, three of India’s low-cost airlines, which together fly almost three out of every 10 passengers within the country, reduced fares on most metro routes by around 30% on Wednesday, in the face of aggressive sales by their full-service rivals and a slump in ticket sales after the last fare-hike.
The decision was helped by a reduction in prices of jet fuel, which acccounts for at least 40% of the operating cost of an airline.
Fare wars: Aggressive sales by full-service rivals were among the reasons for the low-cost carriers to cut prices.
Airlines, both low-cost carriers and their full-service peers, had in tandem raised fares from 6 February after the discounts of up to 50% that they offered for much of January proved unsustainable. That hike, seen as collusive pricing or cartelization by some, resulted in a probe by the country’s anti-monopoly regulator .
On Wednesday, IndiGo, run by InterGlobel Aviation Pvt. Ltd, and SpiceJet Ltd reduced fares from a minimum of Rs4,925 to a minimum of Rs3,833—a reduction of 28%—for the coming week. Fares for the week after on the same sector are down to Rs3,533, according to websites of the airlines.
Ticket prices of JetLite Ltd, a low-cost carrier unit of Jet Airways (India) Ltd, and the Kingfisher Red service run by Kingfisher Airlines Ltd remained priced at their earlier high levels until late Wednesday evening. JetLite tickets on New Delhi-Mumbai continued to be priced at Rs4,933 for next week; Kingfisher Red fares were also the same.
Tickets on GoAirlines (India) Pvt. Ltd’s GoAir, which also cut fares, were priced lower at Rs3,750 and Rs3,220, respectively, on the same route for the coming week and the one after.
With declining passenger traffic and with jet fuel prices being reduced across the country—by 3.3% to Rs29,158 a kl in New Delhi on 31 January—it became almost imperative that air fares were reduced, said Sanjeev Bhasin, assistant vice-president at travel portal Makemytrip (India) Pvt. Ltd, confirming the reduction across most metro routes. The portal reported “a drop of 25-30% on bookings” since the 6 February fare hike, he said.
“We were trying to sustain it by running some offer or the other. But it was not going up at all,” Bhasin added. Jet fuel prices have more than halved since the peak of Rs71,028.26 a kl in August last year.
A second travel industry executive said another reason for the latest cut in fares by the low-cost carriers was that their full-service rivals such as Kingfisher Airlines and Jet Airways had sold several hundreds of tickets on discount, through coupons, for the weeks ahead through travel agents at fares around Rs4,000 one-way on many sectors. With such a huge inventory of tickets sold, low-cost airlines have realized they stand little chance to maintain occupancy on flights and have, therefore, reduced prices, said this top executive at a travel portal, asking that neither he nor his firm be identified.
Even while introducing the latest fares, SpiceJet’s chief executive Sanjay Aggarwal said such lower fares were not sustainable.
“The fares such as Rs2,300 a ticket are nothing but experiments. Nobody knows (the) answer to what is (the) right pricing strategy,” he told reporters in Mumbai. “One will have to react to competitors. But we cannot go back to the craziness that happened in January where air tickets are lesser than a train ticket.”
Aggarwal said his airline needs an average seat occupancy in the “high 60s” on its flights, with ticket prices of between Rs3,800 and Rs3,900 to break-even on its operations.
Such fare cuts, however, are needed to stimulate demand in February and March, historically months with low passenger demand.
Calls and text messages sent to IndiGo’s president Aditya Ghosh remain unanswered.
Low-cost airlines such as IndiGo and SpiceJet reported their aircraft 72.2% and 68.3% full in January, respectively, compared with December’s 75.5% and 69.6%.
Jet Airways flew its planes 64.8% full in the month gone by, while Kingfisher (including its Kingfisher Red service) reported an occupancy of 64%, and Air India, run by state-owned National Aviation Co. of India Ltd, 60.2%. These numbers compared with 60%, 62.8% and 60%, respectively, for these airlines in December.
On Wednesday, shares of SpiceJet gained 0.61% to close at Rs14.79 on the Bombay Stock Exchange, whose benchmark Sensex index shed 0.22%. Shares of Kingfisher were also up 0.61% and ended the day at Rs33.20 each, while the Jet Airways scrip lost 0.16% to Rs156.30.
P.R. Sanjai in Mumbai contributed to this story.
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First Published: Thu, Feb 19 2009. 12 36 AM IST