Domestic carriers launch fare war ahead of festive season

After AI and Jet slashed ticket prices, low-cost carriers respond with 5-20% cuts likely to spur air travel market's sluggish growth

Low-cost air carriers IndiGo, SpiceJet and GoAir have cut fares by five to 20 per cent, the latest move in a price war this festive season between them and their full service counterparts, Jet Airways and government-run Air India (AI).

Over the past six months, air fares had gone up 30 per cent, thanks to the reduction of rival Kingfisher's fleet to a bare minimum and the cap in capacity expansion by most airlines.

AI broke the ranks last Friday, dropping the basic fare on all domestic routes by 40 per cent, provided customers bought the ticket 30 days in advance. Jet did likewise a day later.

Responding, the LCCs have also quietly dropped fares. While IndiGo, SpiceJet and GoAir are not talking, travel portals have confirmed their counter-move. Says Sharat Dhall, president of Yatra.com, “Consequent to AI's dropping of fares, the other airlines have dropped these for dates of travel more than a month out. LCCs have dropped their fares by 10 to 12 per cent." He said this would spur demand, which had become sluggish in the last quarter.(FARE FALL)
A top executive of Makemytrip.com, the country's largest travel portal, said the LCCs’ fare cut ranged from five to 20 per cent.
Effectively, the AI price cut on only its basic fare leads to a fall in the total fare by 10 to 20 per cent. The base price is 20 to 35 per cent of the total fare, depending on the route; the rest are taxes and fuel surcharges, among other fees.
The festive season, the October-November period, contributes 25 per cent of the total aviation customer base, starting Dussehra.
Experts say the fare battle has begun primarily to induce passenger demand. This had slowed in recent quarters, leading to worry of the market shrinking.
Domestic air traffic during July fell 1.1 per cent compared to a year before, the worst performance for any market, reflecting the weakening economy among other factors, the International Air Transport Association said. Compared to last August, passenger traffic fell 8.7 per cent in 2012.
While 4.78 million passengers flew in August 2011, the number declined to 4.37 mn last month, according to the directorate general of civil aviation.
Executives in the travel portals say it is possible the airlines might sell their inventory (usually done seven to 14 days before a flight) at a higher price to offset the tickets sold at a discounted price and might not lose money.
Jet has introduced new 21-day and 30-day apex fares, offering attractive savings on several domestic routes. The travel validity for the 21-day apex fares are valid till October 18; the 30-day apex fares have no expiry date.
Full service carriers have been steadily losing market share to LCCs, and the price move, apart from improving the passenger load factor, could help them grab market share. Budget carriers IndiGo (at 27.6 per cent) and SpiceJet (at 18.5 per cent ) have been gaining market share at the expense of Jet (25.2 per cent). In July, IndiGo (27 per cent) displaced Jet (26.6 per cent) as the market leader in passenger share.
http://www.business-standard.com/india/news/domestic-carriers-launch-fare-war-aheadfestive-season/487548/