TOO MANY SEATS UPSETS THE REGIONAL FARE MIX
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.
Compared to larger single-aisle aircraft, regional jets have fewer revenue-generating seats and flown seat-kilometres 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 kilometer 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. Travellers with a high value of time pay a premium for schedule convenience, a characteristic of regional airlines that fly smallercapacity 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 each-way 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.