The next time
your grandparents boast having bought a litre of petrol for less than a rupee or a tola of gold for Rs 4000, join the conversation with a
similar sigh. Tell them you flew Delhi-Mumbai for Rs 200-3,000 or
Delhi-Hyderabad for Rs 324-3,500.
This was in the heady launch phase of low-cost carriers in India between 2004 and 2006. Like your grandparents, you too would be longing for the good old days of flying. For, no frills, lowfare flying is now history.
Since early 2012 Indian carriers have steadily raised fares by 30%-50%, the price graph resembling the Manhattan skyline in the April-June and October-December peak travel months. Passengers complain of what they term "exploitation", especially in peak rush periods like Diwali or the Christmas-New Year weekend. Aman Verma, a Delhi-based exporter had to shell out a princely Rs 1 lakh for an emergency trip to Thiruvanthapuram. "I had no oprion as train tickets weren't available and I had to rush to Kerala with my family to be with a seriously sick uncle."
Airlines insist they must recover ever rising operating costs or face near-bankruptcy like KingfisherBSE 1.51 % whose grounded planes and staff are rusting. The only way they can charge low fares and still survive, they say, is by getting taxpayers like you and me to fund them - the Air India way.
"Before August 2003, when Captain G R Gopinath launched India's first low cost carrier (LCC), the operating cost of airlines was much lower. Aviation turbine fuel (ATF) wasn't as expensive and airport charges much more affordable. Then, legacy carriers Indian Airlines and Jet AirwaysBSE 1.27 % charged Rs 9,000-10,000 for a Delhi-Mumbai, Kolkata or Hyderabad flight and Rs 13,000-14,000 for a Delhi-Bangalore, Chennai or Goa flight one-way," a former IA official who later worked for two LCCs, said.
This was in the heady launch phase of low-cost carriers in India between 2004 and 2006. Like your grandparents, you too would be longing for the good old days of flying. For, no frills, lowfare flying is now history.
Since early 2012 Indian carriers have steadily raised fares by 30%-50%, the price graph resembling the Manhattan skyline in the April-June and October-December peak travel months. Passengers complain of what they term "exploitation", especially in peak rush periods like Diwali or the Christmas-New Year weekend. Aman Verma, a Delhi-based exporter had to shell out a princely Rs 1 lakh for an emergency trip to Thiruvanthapuram. "I had no oprion as train tickets weren't available and I had to rush to Kerala with my family to be with a seriously sick uncle."
Airlines insist they must recover ever rising operating costs or face near-bankruptcy like KingfisherBSE 1.51 % whose grounded planes and staff are rusting. The only way they can charge low fares and still survive, they say, is by getting taxpayers like you and me to fund them - the Air India way.
"Before August 2003, when Captain G R Gopinath launched India's first low cost carrier (LCC), the operating cost of airlines was much lower. Aviation turbine fuel (ATF) wasn't as expensive and airport charges much more affordable. Then, legacy carriers Indian Airlines and Jet AirwaysBSE 1.27 % charged Rs 9,000-10,000 for a Delhi-Mumbai, Kolkata or Hyderabad flight and Rs 13,000-14,000 for a Delhi-Bangalore, Chennai or Goa flight one-way," a former IA official who later worked for two LCCs, said.
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When Gopinath launched Air Deccan, his mascot was R K Laxman's iconic common man. At the other end of the scale was Air India's Maharaja. Gopinath boldly signalled that with the advent of his airline anyone could fly. His strategy was to grow the flyer base converting AC second-class travellers. And, he audaciously offered some seats in each of his flights at rock bottom rates - as low as Re 1 to Rs 99.
Low fares such as these had their impact. Domestic air traffic grew by over 100% a year. Over the next two to three years, more no-frills airlines entered the aviation space: SpiceJetBSE 2.72 %, IndiGo and GoAir.KingfisherBSE 1.51 % too began as an LCC but was soon converted into an ultra luxury airline.
"Airfares were largely in the range of Rs 2,000-5,000 for almost all domestic flights, barring promotional fares offered by LCCs for some seats on all flights to draw flyers. Initially, legacy carriers waited for the new players to go bankrupt. Later they also joined in the race to drop rates. In the euphoria of Indian aviation's shining story, the small matter of airlines bleeding heavily took a back seat," said another LCC founder.
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Problem started in 2008 when economic slowdown hit India, a wave of recession buffeted the West. Simultaneously, energy prices rose. From mid-2008, ATF prices started shooting up. Soon over half of an airline's total operating cost was on jet fuel. Airport charges went up too, with PPP players in the metros raising landing, parking rates. They also levied user fee from passengers to fund modern terminals. Employee costs rose. In the pre-2003 period, costs were low but fares high. After the LCCs flew in, costs mounted and fares fell.
"Consider the pre-2004 input costs. International crude rates (which determine ATF price) were at $32-a-barrel and Rs 30 to a dollar. A commander and a co-pilot took home Rs 2.5 lakh and Rs 1.25 lakh a month and only an inland air travel tax (15% on basic fare) was levied apart from low airport charges. Consider today's costs: Crude is at $112 and the dollar at Rs 55 in exchange rate; commanders and co-pilot get Rs 4.5 lakh and Rs 2 lakh a month, respectively. Despite that airfares today are lower than what they were up to 2004," an airline's commercial head said.
As
the balance kept getting skewed, the old guard and new players were locked in a
bitter fight to control the skies. In April 2007, Jet's Naresh Goyal bought Air Sahara. He wasn't to be the
country's only private Indian carrier to fly abroad. Kingfisher's Vijay Mallyaretaliated.
He bought Gopinath's Air Deccan in a distress sale to launch overseas flights
early on the LCC's licence.
These expensive acquisitions, with the ill-conceived IA -AI merger the same year, added to the losses. The three biggies, feeling the heat of their M&As, were competing with low-flab LCCs and forced to match their low fares. Worse, airlines ended up with excess capacity. This meant there were not enough flyers to fill seats. They tried to lure passengers with low-priced tickets to fill planes. This was bad economics. Ticket prices didn't match costs.
Result: A Center for Asia Pacific Aviation (CAPA) study says Indian carriers collectively have run up losses worth Rs 46,515crore since 2007. Their combined aircraft, working capital and vendor-related debt stands at Rs 90,500 crore as on March 31, 2012.
The air travellers' low-fare party entered its last phase in the second half of 2011 when financial trouble atKingfisherBSE 1.36 % meant Mallya first began cutting flights to cushion losses, stopped international flights and finally was forced to ground his fleet last month. Along with this, Air India and Jet too reduced domestic flights.
In all, this winter domestic carriers will fly 10,935 weekly flights — down 19% from last winter. With this drop in capacity, AI led the charge in reversing the low-fares experiment. It withdrew the low fares it offered till last year. The result: All airlines took the cue and raised rates, making the fare structure more realistic given their soaring costs.
CAPA India head Kapil Kaul said: "For the first time since 2004, the demand-supply dynamics favours airlines. Fares seem to be higher as airlines this fiscal are trying to charge a sum that reflects their costs unlike last time when everyone was forced to sell below cost. Despite that, the first two quarters of this fiscal have seen listed airlines reporting losses. Passengers should not expect lower fares unless the rupee stabilizes and jet fuel prices get rationalized."
But carriers insist even today 40% of an aircraft is sold below cost, the remaining 10%-15% at cost. Fares start shooting up only after 60% of the plane gets filled. "Fares are determined by something called 'day par' which has two factors - day of week and time of flight. A weekend flight to Goa will be expensive. Flights that time of week to metros are cheaper. Book a month in advance for the best rates. Closer to the travel date, rates are higher," another airline official said. But then, cheap isn't really as cheap as it once was.
These expensive acquisitions, with the ill-conceived IA -AI merger the same year, added to the losses. The three biggies, feeling the heat of their M&As, were competing with low-flab LCCs and forced to match their low fares. Worse, airlines ended up with excess capacity. This meant there were not enough flyers to fill seats. They tried to lure passengers with low-priced tickets to fill planes. This was bad economics. Ticket prices didn't match costs.
Result: A Center for Asia Pacific Aviation (CAPA) study says Indian carriers collectively have run up losses worth Rs 46,515crore since 2007. Their combined aircraft, working capital and vendor-related debt stands at Rs 90,500 crore as on March 31, 2012.
The air travellers' low-fare party entered its last phase in the second half of 2011 when financial trouble atKingfisherBSE 1.36 % meant Mallya first began cutting flights to cushion losses, stopped international flights and finally was forced to ground his fleet last month. Along with this, Air India and Jet too reduced domestic flights.
In all, this winter domestic carriers will fly 10,935 weekly flights — down 19% from last winter. With this drop in capacity, AI led the charge in reversing the low-fares experiment. It withdrew the low fares it offered till last year. The result: All airlines took the cue and raised rates, making the fare structure more realistic given their soaring costs.
CAPA India head Kapil Kaul said: "For the first time since 2004, the demand-supply dynamics favours airlines. Fares seem to be higher as airlines this fiscal are trying to charge a sum that reflects their costs unlike last time when everyone was forced to sell below cost. Despite that, the first two quarters of this fiscal have seen listed airlines reporting losses. Passengers should not expect lower fares unless the rupee stabilizes and jet fuel prices get rationalized."
But carriers insist even today 40% of an aircraft is sold below cost, the remaining 10%-15% at cost. Fares start shooting up only after 60% of the plane gets filled. "Fares are determined by something called 'day par' which has two factors - day of week and time of flight. A weekend flight to Goa will be expensive. Flights that time of week to metros are cheaper. Book a month in advance for the best rates. Closer to the travel date, rates are higher," another airline official said. But then, cheap isn't really as cheap as it once was.
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