Air fare-war wings into the peak season

Praveena Sharma
Tuesday, August 22, 2006  22:40 IST

BANGALORE: The peak season for the aviation sector is nigh. Something bleeding domestic airlines have been waiting for with bated breath because a surge in holiday traffic allows them to push up fares by around 10% every year.

No-frills leader Air Deccan may have just forced them to think differently. It has just taken the off-season fare war to the October to February peak season.

The airline is offering three lakh tickets at Rs 3 (plus taxes) for three months starting October on the eve of its third anniversary.

This means a huge chunk of flyers is automatically out of bounds for rivals and a counterpoint would be raft of freebies from others, too.

An analyst with a foreign brokerage said this will further impact the profitability of the airlines, which are already reeling under the pressures of intense competition and escalating operational costs.

“Generally, airlines hike fares during this period to make up for the low yields during the off-season, but Air Deccan’s ‘3 for 3’ scheme is going to change all that,” the analyst said.

A SpiceJet Ltd official said competition was getting seriously brutal now. “Air Deccan has affected us more than IndiGo Airlines, which is operating on the same routes as us,” the SpiceJet official told DNA Money.

But Raj Halve, chief commercial officer of Go Air, is not impressed by the Air Deccan offer. “Consumers are wise enough to differentiate between gimmicks and genuine offers. Eventually they will go to the airline which gives them value. Whether you offer Re 1 fare or whatever,” he said. Halve says Go Air will not counter Air Deccan’s move.

An industry source said the yields of low cost airlines were currently hovering between Rs 1.16 and Rs 1.25 per seat kilometre.

“This is expected to go down further if the current market condition persists,” he said.

These apprehensions are dismissed by Air Deccan managing director Capt G R Gopinath, who says the latest discount offer is part of his yield management strategy.

“It will give us better aircraft occupancy. Even during peak season some seats go empty. Lower fares will fill up our planes in advance so that we can sell remaining seats at much higher fare. Today, with higher fuel surcharge, we can afford to reduce our basic fares,” Gopinath told DNA Money.

The airline, which has cornered 21.2% market share in the last three years and currently has the largest network, has been quite the initiator of the fare war that has gripped the aviation over the last one year.

Interestingly, despite low fares the load factors - or passenger traffic — of most airlines dipped in July.

Data show that the month saw a decline compared with June. SpiceJet, which usually logs the highest load factor, has seen it drop from over 80% to 78%. The story is said to be no different at other airlines, too.
 

Is Air Deccan messing up the market? Some say Deccan has every right to do so, others say it shouldn;t end up kiiling the goose itself.

Heated debate this morning, as this is the same strategy in the print media market.