Fare war heralds tighter competition among airlines
3 min read 26 Feb 2014, 06:49 PM ISTAir India latest to drop prices as analysts see cuts as effort to gain market share before AirAsia, Tata-SIA entry
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Mumbai: State-run Air India Ltd on Wednesday announced a sale with discounts of about 30% on advance bookings, joining a fare war triggered by private-sector airlines to tide over the lean season and to fill up seats faster.
Air India is offering discounts on tickets booked between Thursday and Saturday for travel between 29 March and 30 September.
“The sale is on select domestic (flights) and the domestic leg of international flights," Air India said in a statement.
The scheme covers 115 flights and offers discounts of about 30% on the advance purchase of 30-, 60- and 90-day fare levels, it said. The state-owned airline said some of the fares on offer are as low as ₹ 1,586 for a Goa-Mumbai ticket, not including taxes. A Delhi-Lucknow ticket costs ₹ 1,889, Mumbai-Kolkata ₹ 3,470, and Thiruvananthapuram-Mumbai ₹ 2,557.
India’s second largest low-fare airline SpiceJet Ltd’s fare cut on Monday seems to have sparked a bonanza for passengers with most domestic airlines, including IndiGo, run by InterGlobe Aviation Ltd, Jet Airways (India) Ltd and GoAir, operated by Go Airlines (India) Ltd, joining the race on the same day and next day with discounts of their own.
Jet Airways, India’s second largest airline by passengers carried, is offering hefty discounts till Thursday. In a notice to travel agents, reviewed by Mint, Jet Airways said the travel validity of these discounted tickets is between 27 March and 30 September. Meanwhile, SpiceJet has extended its flash sale to Thursday instead of closing it on Wednesday, adding “more seats have been added on popular demand".
This was the third such discounted sale in about a month that was followed by all domestic airlines.
The flash sale drives by airlines come at a time when the total accumulated losses of the aviation industry over the previous seven years had risen to $8.6 billion (based on current exchange rates) as of 31 March 2013.
Consulting firm Centre for Aviation, or Capa, in a report last week said the airline industry’s debt had climbed to $12.6 billion, with the full-service carriers—Air India, Jet Airways and Kingfisher Airlines Ltd—accounting for 94% of the amount.
Competition is set to intensify in the industry, meanwhile, with AirAsia Bhd preparing to launch a low-fare carrier and Singapore Airlines (SIA) readying to launch a premium airline in joint ventures with the Tata group.
“Reduction of fares by Indian low-fare airlines indicate the intent of releasing seat inventory in the market strategy before the entry of AirAsia India and an attempt to capture as much of the market before Tata-SIA start flying in India. Drop in fares this time is sustainable since the price of fuel still is at reasonable levels. The last time airlines took a step as this was in 2008, when fuel was around $135 a barrel in the market," said Mark D. Martin, founder and chief executive officer at Martin Consulting Llc.
On Wednesday, the oil price was around $109.52 per barrel. Fuel accounts for around 50% of operating cost for Indian airlines.
Jackson Fernandez, managing director (India) of travel search site Wego Pte Ltd of Singapore, said airline operators are looking to fill seats on flights that are currently running below optimum capacity.
“But additionally, with AirAsia India soon entering the scene, current operators are preparing for the tight competition in prices it will bring," Fernandez added.
According to travel agents, airlines are capping cheap fares based on the response to their promotional tactics and trying to fill seats early on unprofitable routes to ensure minimum seat occupancy. The total number of seats available for such discount drive could not immediately be ascertained.
Last year, in January, SpiceJet put 1 million seats up for grabs at an all inclusive fare of just ₹ 2,013.
Online travel firm Yatra Online Pvt. Ltd, which runs Yatra.com, on Tuesday said it had logged an overall increase of 253% in sale in 24 hours after SpiceJet triggered the fare war.
“The tactical fare sale initiated by SpiceJet, followed closely by other carriers, certainly seems to have grabbed consumer attention,—our bookings at Thomas Cook India are seeing a surge of 50% over the last three days," said Indiver Rastogi, chief operating officer at travel firm Thomas Cook (India) Ltd.
According to Rajesh Magow, co-founder and chief executive officer, India, at MakeMyTrip Ltd, which runs www.makemytrip.com, the website had witnessed a 3x increase in the number of visitors and his website had sold over 60,000 tickets till Tuesday.
“Delhi, Mumbai and Bangalore combinations continue to be the top-selling routes, while leisure sectors like Goa and Srinagar have also seen a big spike. These sales are helping to create new demand for air travel and rejuvenating the market. Airlines are able to improve forward-loads and gain yield predictability by filling up seats earlier," Magow said.
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