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Corporate Jan 22, 2013

No firesale but airlines quietly drop fares to generate demand

By Sindhu Bhattacharya

New Delhi: Officials in the aviation regulator DGCA were heaving a sigh of relief last week, when they thought they had successfully staved off a fare war in the domestic market following SpiceJet's fire sale.

SpiceJet had offered 10 lakh seats for Rs 2013 till mid-April, which is much more than a 50% discount. Officials of the regulator had used some old-fashioned arm twisting techniques to warn other airlines from launching similar schemes despite the official stance that government does not interfere in airlines' pricing strategies.

Officials with various travel portals told Firstpost that immediately after the SpiceJet offer began on January 11, Go Air was readying to launch a sale at Rs 2,007 per ticket (one way) while IndiGo was also preparing to offer rock bottom fares for 50-60 sectors.

A 10 percent discount on advance fares now could be increased in case loads (percentage of occupied seats on an aircraft) plummeted further. Reuters

But the DGCA warning made airlines drop these schemes in a hurry.

What is interesting is that though airlines are unlikely to come up with fire sale offers in the near future, they have quietly been dropping in other ways to keep their aircraft filled between now and March, the traditional lean season.

Travel portals and some airlines themselves have acknowledged that fares are being dropped by at least 10% on advance purchase of five days and more for the next several weeks till March end. And since it has already been evident for many months now that full service carriers like Jet Airways and Air India are matching LCC fares on most sectors, consumers can rejoice with low fares for at least the next two months.

Sunny Sodhi, VP (Air Product) of travel portal yatra.com told Firstpost that in coming few weeks till March, "we will see very interesting pricing strategies by most airlines, particularly on the advance purchase fares".

A 10 percent discount on advance fares now could be increased in case loads (percentage of occupied seats on an aircraft) plummeted further. Already, in the first fortnight of January, yields (which measures revenue per passenger) are down by about 10% year on year.

An official at a leading full-service carrier pointed out that the domestic aviation market has been shrinking, particularly in the last six-seven months and unless airlines stimulate demand with fire sales, the market will not bounce back in the near future.

Between January and December 2012, the year-on-year drop in domestic air travellers has been more than 18 lakh.

"There was nothing wrong with the SpiceJet fire sale offer and airlines will now surreptitiously drop fares to generate demand. SpiceJet was trying to stimulate demand in the lean period. It is a no frills carrier and was only offering 10 lakh tickets in a span of three odd months. The regulator should not have warned other airlines to drop me-too fire sales. Now, airlines are being forced to adopt quiet ways to fill their aircraft. In today's market, whenever one airline drops fares, others immediately follow," this official said.

Sodhi of yatra,com agreed. "The SpiceJet offer was good for the end consumer and good for the industry since it stimulated demand".

But the low fares are only on advance purchases. If you are planning a sudden trip then be prepared to fork out more. A one way trip from Delhi to Mumbai on the Republic Day weekend on Saturday will cost you anywhere between Rs 8,241 to Rs 8,420. The first fare bracket is available on IndiGo and SpiceJet while the second one will get you a seat on full-service Air India or Jet Konnect.

Aviation industry experts point out that yields have been good for much of last year when airlines were holding up fares on the busiest sectors but with the lean season kicking in amid falling demand, their ability to command higher fares has declined significantly. Are we looking at another terrible quarter in terms of airline balance sheets?

by Sindhu Bhattacharya

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