Airfare war, but it’s a short term gain
Price wars serve as a short cut for loss laden airlines to survive for a brief period. But where is the assurance for the passengers that the airline will honour their commitments? talks to industry to know more...
TEENA BARUAH The
year 2013 began on an optimistic note for Indian domestic airlines. Kingfisher Airlines’s exit meant seats were in short supply. This created, for the first time, a demand and supply dynamics which was more in favour of the airlines. The airfares went up by 2030 per cent. This raised hopes for airlines that profits were finally on the horizon.
But in January, SpiceJet, India’s second largest budget airline, cut ticket prices by more than half for travel between February and April in a move that forced its rivals to follow suit. It offered one million seats at an all-inclusive fare of 2,013 for any domestic flight between February 1 and April 30 booked till January 13. As a result, an airline that typically books 40,000 seats on a normal day, registered a booking of 1.7 lakh seats within hours. IndiGo and GoAir reacted to the move by matching the fare cuts immediately. Air India refused to jump into the game by maintaining that such a cheap sale will ultimately hit the industry.
But on March, the national carrier hit back, offering discounted fares to customers who want to travel 60 days later and beyond, with prices close to those of air-conditioned train travel, to stimulate leisure travel. Soon, Jet Airways (India) joined the 60-day advance discount drive with tickets at least 30 per cent lower than the usual fare.
At the outset, the price war seems to be a win-win strategy for everyone involved. The rock bottom prices boosted airline sales and occupancy dramatically with a record number of Indians flying across the country. “The competition within the domestic airlines creates a greater demand for domestic holidays as people get attracted by the low fares and plan holidays which they may not have otherwise,” says Gopika Khanna, FIT Area Manager, India, Sri Lanka, Bangladesh and Nepal.
Kapil Kaul, the South Asia Chief Executive of the Centre for Asia Pacific Aviation, explains that the strategy is focussed on selling unsold inventory, raise cash and increase occupancy in a lean season. SpiceJet saw 78 per cent increase in occupancy in February compared to January 2013. Growing market is in everyone’s interest but airlines need to avoid loss leadership pricing.
Sumanth Kapoor, Founding Member, OTOAI agrees with Kaul, adding, “The tickets already bought may distort the prices when the demand for air tickets increases, as the airline will have less inventory to sell.”
An airline official says on anonymity, “These people are suicidal. Taking people to Madras (Chennai) in 900 is plain suicidal. It does not even cover your fuel cost. The industry is shooting itself in the foot.”
Biji Eapen, National President of the IATA Agents Association of India, insists that Directorate General of Civil Aviation should have a machinery to regulate the market pricing – recording, monitoring and controlling. “The low ticket price war was initiated by Air Deccan, but finally the airline got sold out. Kingfisher too followed suit. Also, last February, when Bahrain Air ceased operations, they advised their passengers to find out their own means to complete their journey,” he says.
“India has witnessed so many airline closures: Mahan Air, Swiss Air, Alitalia, Al Jazeera Airways and Nas Air on international operations in India and on domestic, Asiatic Airlines, East West Airlines, Modiluft, NEPC Airlines, Archana Airways, Air Sahara, Vayudooth, Damaniya Airways, MDLR Airlines and Paramount Airlines. Recently the biggest OTA, Travelocity closed down their operation in India. In such a volatile market, the price war serves as a short cut for loss laden airlines to survive for a brief period. But what is the guarantee that these airlines will operate? Where is the assurance for the passengers that the airline will honour their commitments? Indian travellers and agents who sell the airline products need a counter guarantee,” says Eapen.
So, while the aviation sector feverishly speculates over Air Asia’s entry triggering another price war, the travel trade insists that the government should have an airfare structure policy. “The fares should be based on distance and must have a cap on upper limits keeping realistic fare bands. Fares cannot be fluctuating on a daily basis. The fare must be based on aircraft rules with travel agents’ commission as its integral part. Though fares are based on yield control, classification of RBD should be transparent. This transparency will provide a level playing field for all players,” concludes Eapen.