Re­gional air­lines have cranked up daily air­craft util­i­sa­tion in or­der to re­duce unit costs and sur­vive in In­dia’s highly com­pet­i­tive do­mes­tic low-fare en­vi­ron­ment

SP's Airbuz - - Table Of Contents - BY BY­RON BOHLMAN, VAN­COU­VER/ CANADA

Re­gional air­lines have cranked up daily air­craft util­i­sa­tion in or­der to re­duce unit costs and sur­vive in In­dia’s highly com­pet­i­tive do­mes­tic low-fare en­vi­ron­ment.

WHAT A DIF­FER­ENCE SIX years make. The frenzy with which air­lines in In­dia added air­craft to their fleets near the end of the last decade seems omi­nously fa­mil­iar to­day as new car­ri­ers en­ter the do­mes­tic mar­ket and bring hun­dreds of new air­planes with them. Where is all that ca­pac­ity to be placed and is there suf­fi­cient de­mand to fill the seats at sus­tain­able ticket prices with­out du­pli­cat­ing the fare wars that led to the demise of sev­eral air­lines in the late 1990s?

To­day’s land­scape is dra­mat­i­cally dif­fer­ent – do­mes­tic rev­enue pas­sen­ger kilo­me­tres are grow­ing at dou­ble dig­its, the price of jet fuel is sub­stan­tially lower, cabin load fac­tors are healthy, car­ri­ers are mak­ing prof­its, in­cen­tives are in place to sup­port a Re­gional Con­nec­tiv­ity Scheme, and un­der­served air­ports are get­ting more at­ten­tion. Yet there are still some 130 non-stop flights ev­ery busi­ness day be­tween Delhi and Mum­bai with ticket prices that re­flect all that ca­pac­ity. It may be one of the rea­sons why do­mes­tic air­fares (yields) in In­dia have re­mained so chron­i­cally low com­pared to other coun­tries with lo­cal air­line net­works. SMALL AIR­PLANES AND LOW YIELDS. Those weak do­mes­tic yields make it tough for in­de­pen­dent car­ri­ers with smaller-ca­pac­ity re­gional jets to com­pete with the pric­ing power of In­dia’s low-fare air­lines es­pe­cially when they, them­selves, en­ter low-de­mand, sec­ondary mar­kets with high-den­sity, one-size-

fits-all 180-seat A320s. Com­pared to larger sin­gle-aisle air­craft, re­gional jets have fewer rev­enue-gen­er­at­ing seats and flown seatk­ilo­me­tres over which to amor­tize costs. They fly shorter routes, of­ten com­plete more cy­cles per day and, con­se­quently, have higher di­rect oper­at­ing unit costs, mea­sured per avail­able seat kilo­me­tre (DOC/ASK.) Short-haul flights nor­mally com­mand higher fares per kilo­me­tre than long-haul flights.

Re­gional air­lines, in par­tic­u­lar, must re­cover the fixed costs as­so­ci­ated with tak­ing off and land­ing (ter­mi­nal charges, main­te­nance, pas­sen­ger pro­cess­ing, air­port fees) with­out amor­tiz­ing those ex­penses over a long dis­tance. The fare-dis­tance re­la­tion­ship is gen­er­ally true to­day yet low-cost car­ri­ers (LCCs) may be push­ing ticket prices lower on short-haul routes and where seat sup­ply of­ten ex­ceeds pas­sen­ger de­mand. TOO MANY SEATS UP­SETS THE RE­GIONAL FARE MIX. Trav­ellers with a high value of time pay a pre­mium for sched­ule con­ve­nience, a char­ac­ter­is­tic of re­gional air­lines that fly smaller-ca­pac­ity air­craft fre­quently. The mix of high and low-fare pas­sen­gers on a re­gional jet is usu­ally suf­fi­cient to make a flight eco­nom­i­cally vi­able. In sec­ondary mar­kets of, say, 200 daily each­way pas­sen­gers, a 100-seat re­gional jet can of­fer three daily di­rec­tional flights timed to sat­isfy morn­ing and evening peak and mid­day off-peak de­mand. Price-sen­si­tive trav­ellers are of­ten at­tracted to dis­counted fares on non-peak flights, an in­cen­tive that helps dis­trib­ute de­mand more evenly through­out the day. But air­craft with too many seats in a 200 daily each-way pas­sen­ger mar­ket can skew the fare mix. LCCs, look­ing to de­ploy their large air­planes af­ter sat­is­fy­ing morn­ing peak de­mand on Tier-I routes, rou­tinely sched­ule mid­day flights to Tier-II or even Tier-III re­gional mar­kets be­fore the air­craft re­turn to the pri­mary city pairs for the evening peak. The ex­tra fly­ing gen­er­ates more flight hours that serve to keep unit costs down but the big air­planes of­fer seats where there is lit­tle or no de­mand for them. Con­se­quently, tick­ets are sold at deep dis­counts sim­ply to gen­er­ate cash in an at­tempt to stim­u­late sales. While a 180-seater may, in fact, break even on a TierII or Tier-III route, the abun­dance of bot­tom-priced seats neg­a­tively im­pacts a re­gional car­rier’s own fare mix when it is forced to match its com­peti­tor’s low prices on the same city pair.

Heav­ily dis­counted fares in one mar­ket can also im­pact nearby mar­kets that aren’t even served by LCCs. On­line travel search en­gines make shop­ping for air­fares com­pletely trans­par­ent. Smart con­sumers can eas­ily find more at­trac­tive fares and sched­ules in neigh­bour­ing ci­ties. CRANK­ING UTIL­I­SA­TION UP TO KEEP UNIT COSTS DOWN. Un­less re­gional car­ri­ers have sweet fi­nan­cial ar­range­ments with their co-branded main­line part­ner air­lines to cover their oper­at­ing costs for feeder flights (as most re­gion­als do in the United States), re­gional jet op­er­a­tors in In­dia face a tough bat­tle in

Need to Main­tain a Healthy Bal­ance: The op­er­a­tors of large ca­pac­ity air­craft should be look­ing at the op­tions for smaller routes thereby mak­ing use of right ca­pac­ity for right des­ti­na­tions

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.