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Summer of Freebies

As holiday season sets in, airlines are getting back to promotional tactics with an eye on improving passenger traffic and fighting out price wars. PR Sanjai writes.
Hindustan Times | By PR Sanjai, Mumbai
UPDATED ON APR 17, 2008 02:31 AM IST

The Rs 99 flight ticket is back even as some of India’s airlines revive a promotional tactic they abandoned in 2007-08 after low prices resulted in them posting aggregate losses of $ 500 million or Rs 1,995 crore in 2006-07.

The move is aimed at increasing passenger traffic but executives in some airlines say it will only end up increasing losses. The announcement of the Rs 99 fares comes just before the onset of the holiday season. No-frills carrier SpiceJet Ltd has launched what it calls the “red hot spicy fares” in select sectors, mostly short-distance routes.

Simplifly Deccan and InterGlobe Aviation Pvt. Ltd’s IndiGo, too, have announced tickets that start at Rs 99. The Wadia Group-promoted Go Airlines India Pvt. Ltd, which runs low-fare carrier GoAir, has done one better — it has introduced a free ticket where passengers pay just tax and surcharge for flying anywhere till October 25. Also children up to the age of 12 travelling with their parents fly free during the summer holidays. “These are promotional fares to stimulate passenger interest and are for a limited period. The increase in the fuel surcharge has led to these fares,” IndiGo chief executive Bruce Ashby said.

Such fares, first introduced in 2005 by Deccan Aviation, helped popularise domestic air travel in India. In 2007-08, however, most airlines were forced to give up the fares due to prices of fuel shooting up that year. Most airlines decided to make Rs 500, excluding surcharge and taxes, the lowest fare. Apart from taxes, airlines charge a surcharge for fuel.

As fuel prices continued to rise, so did fares. A ticket that cost Rs 750 in 2007, now costs Rs 2,000. The result has been a fall in passenger traffic. Captain GR Gopinath, the first to introduce a Re1 ticket on India’s first low-cost airline Air Deccan founded by him, said the move is logical. He added that he had introduced cheaper fares to attract a new set of passengers. Gopinath is now executive chairman of Deccan Aviation Ltd after Air Deccan was acquired by the UB Group last year and renamed Simplifly Deccan. “Today, airlines are reintroducing the Rs 99 ticket to have incremental revenues and this will result in high load factor. Flying an empty plane is not making any commercial sense,” he said.

A chief executive of an airline said full-service carriers such as Air India, Kingfisher Airlines and Jet Airways too will be forced to lower their fares on short-haul routes. “Jet Airways has stayed away from pricing politics as we believe that such low fares are not sustainable. We however, cannot completely refrain from pricing actions if other carriers start offering Rs 99 fares,” said Jet chief executive Wolfgang Prock-Schauer.

Already, JetLite, a low-fare carrier operated by Jet Airway India Ltd, has started offering fares less than Rs 500 on select routes. Nearly all of the “free” and Rs 99 fares are restricted to shorter routes. Meanwhile, the airlines have imposed another round of fuel surcharge of Rs150 a ticket for routes up to 750 km and Rs 350 a ticket for more than 750 km, from April 7.

A passenger on a short-haul route pays Rs 2,175 as surcharge and taxes on a free ticket, while a long-haul route passenger pays Rs 2,375. In addition, carriers charge up to Rs100 per web transaction. SpiceJet’s chief commercial officer Samyukth Sridharan said a short-haul flight would still be profitable at base fares of Rs 99 per ticket, as this would raise seat occupancy to 80 per cent. “These fares are not sustainable in the long term in the context of losses,” said Aniket Mhatre, an aviation analyst with Mumbai-based brokerage Prabhudas Liladher Pvt. Ltd.

Prock-Schauer added that cheap fares would lead to more losses. “Maybe it will speed up the necessary consolidation process in the industry as Indian carriers are losing close to $1 billion if you eliminate extraordinary gains from sale and leaseback and currency gains.”

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