Full-service carriers push the low-fare envelope to stay afloat4 min read . Updated: 10 May 2009, 09:23 PM IST
Full-service carriers push the low-fare envelope to stay afloat
Mumbai: Through fiscal 2009, a year when oil prices scaled a record of $147 a barrel, airfares fell by almost 25% on domestic and international routes. The period also dovetailed with the onset of a recession in the US, Europe and Japan and a slowdown in the Indian economy, causing passenger traffic to contract by 10% after expanding at an annual 35% rate two years ago.
What this has done is to make Indian full-service carriers recognize the strategic relevance of the low-fare airline model in a market with air travellers turning increasingly thrifty.
On Friday, Jet Airways launched a new low-fare service called Jet Konnect that will be at least 15% cheaper than the full-service option, despite already running low-fare service airline JetLite. The next day, Kingfisher announced that it was moving at least 25 full-service flights to its low-fare segment Kingfisher Red beginning 15 May.
“The intense competition on the international routes and excess capacity on the domestic routes have eroded the yields of Indian carriers," said a senior executive from Jet Airways, who declined to be named because he is not authorized to speak with the media. “The difference between the fares offered by full-service and low-fare carriers has narrowed."
Jet Airways, Kingfisher Airlines, Paramount Airways Ltd and National Aviation Co. of India Ltd (Nacil) run full-service operations, while SpiceJet Ltd, InterGlobe Aviation Pvt. Ltd (that runs IndiGo), and GoAirlines (India) Pvt. Ltd (GoAir) are low-fare carriers.
Full-service carriers have been pulling back flights in an attempt to trim seat capacity in the air, while their low-cost peers are increasing frequency of flights and are on course to take delivery of planes ordered.
Airlines are now also offering lower fares through imaginative promotions, both their own as well as through online booking sites.
For instance, Stuart Crighton, chief executive of online travel firm Cleartrip Travel Services Pvt. Ltd, said his site is offering 50% cash back on a ticket’s base fare when passengers book using an HDFC Bank credit card. The offer is for up to Rs2,500. Air ticket fares in India comprise a base fare, fuel surcharge and levies such as airport fee.
Online travel firm Yatra Online Pvt. Ltd (Yatra.com) is offering up to 60% discounts on domestic flights if booked 30 days in advance.
To celebrate its 16th anniversary, Jet Airways has introduced a special “scratch and win" promotion wherein fliers are guaranteed a 6-16% discount on the base fare (taxes and charges are extra). It has also introduced special return fares for economy, business and first class to London from several Indian cities between 11 May and 30 June.
Kingfisher allows its boarding pass to be used for discounts at partner firms such as Taj Hotels, car rental firm Hertz, electronics retail chain Croma, and purchases from stores of designers Satya Paul and Rohit Bal.
Whether such incentives will draw passengers back, however, is an entirely different issue. Domestic carriers have seen passenger traffic decline by almost 10% for fiscal 2009, from 43.97 million to 39.40 million, according to the directorate general of civil aviation, or DGCA, the civil aviation regulator. International traffic for the same fiscal was almost unchanged.
Kavi Ghei, director, Trac Representations India Pvt. Ltd, a Delhi-based destination management firm that handles marketing for foreign tourism boards, said average airfares for fiscal 2009 have fallen by 10-20% to Europe, 10-40% to Malaysia, Singapore and Thailand and at least 10% to countries such as Australia and New Zealand.
Indian carriers, whose expectations of a surge in passenger growth were dashed by the global economic downturn, high fuel prices and excess seat capacity, are now staring at a collective $2 billion in losses for the fiscal year gone by. Part of the reason for the airlines’ declining fortunes, say industry executives, has been their over-reliance on a narrow, but premium, segment of fliers.
“The primary reason behind erosion of yields on international routes was due to weak seat occupancy in front end. On domestic routes, passengers are sliding towards low fare side," said another Jet executive, who is also not authorized to speak to the media.
Seating on commercial planes are designed such that premium (first and business class) seats are placed in the front section of the aircraft.
Business class sections typically cost six-eight times more than economy fares, while first class fliers pay at least 10 times the price of an economy class ticket.
“Most painfully for network carriers in this (Asia Pacific) region, the unimaginable slump in premium travel—a larger market segment than for other parts of the world—has seriously undermined a bloated over-reliance on high yielding traffic. The suddenness of the reversal, along with a large backlog of aircraft orders in this region, has caught managements unaware and unprepared," wrote Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, an aviation consultancy firm, in a 9 May report.