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Airfare war erodes yields by 50%: Capa

Airfare war erodes yields by 50%: Capa
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First Published: Wed, Feb 04 2009. 11 27 PM IST

Updated: Wed, Feb 04 2009. 11 27 PM IST
Mumbai: The average profit per ticket, or yields, for India’s full-service carriers has fallen by at least 50% since the beginning of 2009 as airlines slashed prices to lure back passengers, the Centre for Asia Pacific Aviation (Capa), an aviation consulting firm, said in its latest report. For low-fare carriers, yields fell 40%.
These reductions, combined with a four-five percentage point fall in the January load factor, or the number of occupied seats on a plane, will result in losses of nearly $2 billion (Rs9,740 crore) for the fical year ending March, Capa estimated.
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“The industry cannot recover with such negative pricing and the game of one airline trying to outlast the other could destroy the entire industry,” Kapil Kaul, Capa chief executive (Indian subcontinent and Middle East), said in the report released on Tuesday.
As crude oil prices rose to an all-time high of $147 in July, airlines started increasing their fares. The taxes and surchages jumped as well, forcing passengers to opt for cheaper modes of transport.
But with oil prices falling by more than $100, full-service carriers such as Jet Airways (India) Ltd, Kingfisher Airlines Ltd, Paramount Airways Pvt. Ltd and National Aviation Co. of India Ltd, which runs Air India, resorted to discounts of up to 50% to draw passengers.
Low-fare carriers such as GoAirlines (India) Pvt. Ltd (GoAir), IndiGo, run by InterGlobe Aviation Pvt. Ltd, and SpiceJet Ltd announced steeper discounts, even charging only for taxes and surcharges.
“I do not think these low fares (are) going to be sustainable. I hope fares will be back at normal levels in two-weeks,” SpiceJet’s chief executive Sanjay Aggarwal said over phone. “In (the) last 30 days, we had a bigger hit in the revenues due to these discounted fares. However, load factors did not improve in proportion to the lower fares. I would rather like lower load factor than declining revenues.”
Domestic passenger traffic declined 18% in the quarter ended December.
“Traditionally, February and March are weak periods for domestic travel. Now, with these discounts schemes, we are targeting incremental traffic, though there is an impact on our yields,” said a Jet Airways executive, who didn’t want to be named.
The industry cannot afford another set of losses in the next fiscal year “as it would mean all the stakeholders are supporting a very bad business case”, Capa said in its report.
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First Published: Wed, Feb 04 2009. 11 27 PM IST
More Topics: Airfare | Capa | Passengers | Low-fare | Oil Price |