Aggressive competition forces Indian to reduce fares

NEW DELHI: If you can't fight them, join 'em. That seems to be the survival motto for Indian, the country's national carrier. Faced with aggressive competition from low-cost airlines in the past six months, the carrier has been forced to drop its price line, in some cases even lower than the low-cost airlines.

"We haven't been able to fill up the aircraft at higher fares. Every time we've upped fares, forward bookings have fallen. Plus, customers have come to expect lower fares, thanks to the deals from low-fare carriers," said a senior official from Indian on condition of anonymity. Three months ago, Indian was merged with Air India to form National Aviation in the search of better economies of scale.

But to make matters worse, airline capacities have gone up by 35% in the past one year. While traffic, too, has grown during the same period, airlines have been under constant pressure to fill the demand-supply gap.

Speaking on behalf of travel agents selling Indian tickets, Madhav Oza, a Mumbai-based consolidator, says with its new fleet, the airline should have been able to go in for higher revenues. Indian is currently in the middle of a massive $2-billion fleet-induction programme to bring in 43 new Airbus planes. However, it has completely failed to capitalise on this.

There is very little advertising on the new planes or service quality, and not too many people even know how many of the new planes are part of the fleet. The last media communication by the airline about its operations was on June 23, when it claimed to have got back market leadership. Since then, according to the latest DGCA figures on market share, Indian's share has come down from 21% in the April-June quarter to 19.8%.

The result: the full-service airline - with its full complement of food, service and passenger comforts - hasn't been able to command a premium over low-cost carriers. Passengers are now able to buy seats on par with and even lower than low-cost carriers like Indigo, GoAir and SpiceJet. A study of fares quoted by the eight domestic airlines on the 10 busiest routes in the country shows that Indian fares are about 10% to 25% cheaper than the full-service carriers Kingfisher and Jet Airways (Deccan has already begun upgrading its fares, marginally higher than competing low-cost carriers).

Indian's last minute 'Unchecked fare' system, where unsold ticket inventory is sold at prices usually lower than the regular fares till two hours before departure, has also contributed to lower realisations. Some savvy passengers have begun converting their higher fare ticket to these last-minute fares. Cancellation charges are only Rs 750 and changing over to these fares makes sense if it is available cheaper, says an Indian frequent flier.

One-way economy fares for morning peak hour flights during the post Diwali week beginning 13 November, for instance, show Indian pegged at Rs 4,573 on the Mumbai-Delhi route, while Kingfisher and Jet are both selling at Rs 5,221, a difference of over 10%. Low-cost airlines Indigo, JetLite and Deccan are pegged higher at Rs 5,044. SpiceJet is the only airline on this route selling lower at Rs 4,340. This pattern holds true for at least 10 other routes, which account for a significant chunk of domestic air traffic. It's the same story on corporate fares, which is a major source of income for full-service airlines, said a senior travel executive with a large oil major.

The repercussions aren't hard to guess. But so far, unlike the other listed airlines, it is impossible to figure out the impact of the lower realisations on the Indian balance sheet. The company has yet to file its results for the financial year 2006-07; there are also no quarterly or half-yearly result updates on performance. While there is no clear indication of when the full picture of Indian's performance will finally emerge, the pricing pressures offer a sneak preview of the turbulence that the country's national carrier is flying through.

http://economictimes.indiatimes.com

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