Monday, 18 June 2012

Air travel goes back to pre-low cost era


Low cost is not cheap anymore. These days a one-way ticket on an average would cost you a minimum of `6,000. Ticket prices have hit an all-time high due to several reasons ranging from high cost of aviation turbine fuel, increased airport charges (in case one is transitting from the metros) and also fewer seats that are available due to contraction in the number of seats due to sub-optimal operations by private carrier Kingfisher Airlines and also the ongoing strike by Air India pilots.
Till recently when low cost flying came to India in 2005 with the advent of Capt Gopinath led Air Deccan (now Kingfisher Red, now nearly defunct) a round trip from Delhi to any other metro would cost about `5,000, but today the same trip costs you `12,000 or more depending when the tickets were booked, however, early bookings can fetch slightly competitive rates.
To make the market more price sensitive, Air Deccan also offered some (about 10 tickets) per flight at `1 on a first come first serve basis, but that has become a thing of the past now. However, continuing with the same tradition, private carrier SpiceJet, to encash on the summer rush and lack of availability of seats is offering a limited number of one-way tickets for as low as `777, but the offer was just for a day, the airline did brisk business and sold about 38,000 tickets in an hour.
The falling rupee, a near 14% rise year on year of aviation turbine fuel prices and the overall sluggishness in the domestic market has left flyers with little choice but to contend with expensive air travel.
Aviation sector in India is one of the most taxed sectors - fuel, aircraft leases, airport charges, air passenger tickets, air navigation service charges, maintenance costs, fuel throughput fees, into-plane fuel fees, and other items subject to service taxes.
“Almost 70% of the airline costs like maintenance, jet fuel, spares etc. are dollar denominated. Rupee depreciation, rising jet fuel and the prevailing competition in the domestic market has wrecked the balance sheets of most Indian carriers,” says Amber Dubey of global consulting firm KPMG.
“Whilst it is true that fares have gone up significantly post Kingfisher’s reduction in flight schedule, we shouldn’t forget that
ATF costs are currently much higher than in the pre-low cost airlines era. More importantly, after the crisis airlines are no longer chasing market share at the expense of profitability something that they unwisely did earlier by offering below-cost level fares,” says former executive director Air India and aviation commentator Jitendra Bhargava.
“Airlines cash in on the urgency. Even if there are enough number of seats available the airline will say that please book now or else even these tickets would be sold out. However once inside the aircraft you find nearly half the seats vacant. I don’t understand why can’t there be a ceiling on the price of airline tickets,” a passenger travelling on a short haul flight said. The passenger had to buy a one-way ticket for `6,500.
Destinations like Kullu and Leh which are not served by the low cost carriers airlines are selling at a premium, thanks to the holiday season. A return ticket between Delhi-Kullu for a less than an hour’s flight costs `20,000.
Jet Airways’ low-cost carrier Jet Konnect shows air-fares that are higher than the carrier’s regular flights. Though the airline maintains that the capacity it offers increases on an average of 15 per cent every year, no relief is seen for passengers.
“Air India, earlier Indian Airlines, is today what it was in the pre low-cost airline era. Capacity constraint was of course there on mainline sectors between metros. Fares were uniform, no subclasses within the economy as is now. Food was an integral part but in-flight entertainment system wasn’t there. Airlines did not market as vigorously as they do now. Competitive fares came in not only because of low cost airlines but also when capacity exceeded passengers and airlines began to lure passengers in a bid to enhance market share,” Bhargava said.
Operational Economics played no role in this era as all airlines vied to get passengers as a result of which the gap between the fares of low cost and legacy carriers narrowed. In the initial stage of low-cost phenomenon, fare difference was substantial. Gap narrowed as the capacity increased.
Today, DGCA has created price-bands for a particular number of kilometers which on the higher side are `10,000 and lower side are `3,000. Naturally in these expensive times none of the carriers are elastic towards lower fares.
http://newindianexpress.com/business/news/article545624.ece

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