Anew dogfight in the air is helping travellers book air tickets at very cheap rates even as analysts say it could send airline industry profits into a further tailspin.
India’s cash-strapped discount airlines are trying a new pricing trick to fend off a growing challenge from full-service competitors who are invading their territory.
Low-cost carriers, or LCCs, typically allowed passengers to pay less for a ticket if they book a month before the day of travel. Prices climbed from then on. These early booking discounts are being discontinued—and prices have been dropped irrespective of when you buy an airline ticket.
In June, for example a Delhi Mumbai flights ticket was available on average for Rs3,500 if it was bought for a journey within the next 30 days but was offered at Rs2,500 if booked more than a month before the flight.
On Wednesday, the lowest all inclusive Delhi-Mumbai ticket for next week was sold at Rs2,453 for GoAir and exactly the same if booked for 2 October, that is a month in advance. The next day fares on the same sector are available for Rs3,029.
“It (the business model) is getting defeated today when you are dumping fares,” said M. Thiagarajan, managing director, Paramount Airways Pvt Ltd, adding that tickets were being sold on average at least a quarter below their cost for the airline. It was as if the airlines were bent on “chasing bankruptcy”, he said.
The mad rush to undercut comes before the launch of several economy flights by full service airlines such as Jet Airways (India) Ltd (under the Jet Konnect brand) which added to excess capacity in what is the leanest period for the industry—the July-September quarter—in terms of passenger traffic, a Mumbai-based aviation analyst with a domestic brokerage firm said. He did not want to be named as he is not authorized to speak with the media.
Jet Konnect was launched in May and has been steadily increasing flight frequency to take, as one Jet official who did not speak on record said, “the war to the LCCs”.
Konnect will increase its daily flights to 180 in October from 135 currently. Air India too has announced it plans to launch its domestic economy service Air India Express from later this month and is converting 10 Airbus A320 aircraft.
SpiceJet Ltd’s CEO said his yields are getting affected because of this new pricing. “Our current yields are the lowest in 24 months,” said Sanjay Aggarwal.
“Certain airlines are getting panicky finding too many seats going empty. Nobody wants to do it but some are forced to do it because of cash flow issues—others follow sometimes,” Thiagarajan said adding that some airlines were pushing cheaper fares in the market forcing others to match them.