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Airline price war likely

Full service airlines such as Jet and Sahara might pitch for a partial restriction on fare cuts, writes Gaurav Choudhury.

india Updated: Oct 16, 2006 15:47 IST
Gaurav Choudhury
Gaurav Choudhury

The heads of all of the country's airlines will meet in Mumbai on Monday to thrash out the broad contours of a common industry-wide turnaround strategy. Aviation analysts, however, expected that the meeting might see a division within the industry on the contentious issue of a price war unleashed by the new low-cost airlines (LCCs).

“The concept of a restriction on further cut in tariffs is not going to be acceptable to us as we work on the very model of low fares,” Spicejet CEO Siddhanta Sharma told Hindustan Times.

There are expectations that full service airlines such as Jet Airways, Sahara and Indian (IA) might pitch for a partial restriction on predatory fare cuts.

Globally, there is no evidence of airlines getting together to decide on matters of fare and tariffs.

The meeting is also expected to take up the issue of capacity addition, which is cited by many as the primary reason for the bleeding balance sheets of airlines, as they try to boost market share and brand value to maintain volumes that help long-term viability.

"Everybody is adding capacity in a market that is showing low yields. There has to be some rationality in capacity," said Sharma.

Significantly, Air India (AI) chairman and managing director V Thulasidas has convened the meeting.

The chief executive officer (CEO) of a budget airline, who did not wish to be identified, said that the idea behind AI convening the meeting is to ensure neutrality as it does not operate on domestic routes.

The invitation sent out by Thulasidas to all airline CEOs says that the meeting will address "a collaborative growth agenda for the airline industry in India."

The government has also expressed concern about the financial health of the domestic civil aviation industry . At a recent meeting with airline CEOs, Civil Aviation Minister PrafulPraful Patel indicated that the government would explore appropriate policy interventions to bring down the operational costs of airlines.

The meeting on Monday is also expected to take up the idea of "cash-flow pre-audit" of airlines, where the airlines submit an anticipated cash-flow of the ensuing three months.

The industry is not averse to the idea of submitting a quarterly business plan on a prospective basis. “No airline present in the meeting with the minister recently has objected to the proposal. It is in a way good for us as it gives us an opportunity to plan ahead", said Sharma.

First Published: Oct 16, 2006 15:47 IST