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What's happening to air fares in India?
September 26, 2008
Have airlines and air fares gone mad ? If you compare current fares with those the same time last year, or even a few months ago, you could be forgiven for thinking they have been schizophrenic.
To start with, an examination of flights from the capital to any of the main metros on the low fare airlines shows that routes are priced almost exactly the same as each other. So, Delhi-Mumbai (a two-hour flight) will cost you roughly the same as Delhi-Chennai (two and a half hours) or Delhi-Bangalore. Last week, this was roughly Rs 10,000-11,000 for a return ticket. It appears ticket pricing bears no relation to the distance flown.
APEX (book early and pay less) appears and disappears with unerring regularity. Just a week ago, few carriers were offering lower fares, whether one travelled the next day or three months down the line. This is in sharp contrast to a year ago where fares for travel after a few weeks could drop as sharply as 50 per cent.
This week, it's back again. While all metro fares ex-Delhi appear to be the same on every low cost carrier (Rs 10,800 for next week), they've brought in some of the "apex" flavour back.
For one month later, the fares on all the low fare airlines are around Rs 8,800 for Delhi to all other metros. In fact, fares are so erratic these days that it doesn't help to book early as the same flight may be available at a far lower price a few weeks later.
Last-minute fares also appear to be a thing of the past. The erstwhile Indian Airlines (now Air India) had created quite a stir in the market place by offering throw-away last-minute fares.
The logic was that instead of letting the seat go waste, fill it up and earn some revenue in the process. This happy situation for passengers ended soon after former CMD Vishwapati Trivedi left and the new management revised its thinking.
Special promotions are also fewer and harder to come by. For the last two years, if loads fell on particular routes, usually some promotions would appear. This August, loads on one of the most lucrative sectors, Delhi-Mumbai, have been pretty low.
This is in sharp contrast to last June when I paid close to Rs 11,000 one way for a 2 pm IndiGo flight for what was absolutely the last seat on the plane. So, in August, faced with pathetic loads, most low fare airlines were offering you a seat for Delhi-Mumbai for Re 1 plus taxes and extras that one now takes for granted. The total one-way fare worked out to about Rs 3,000.
Loads haven't risen much but for some odd reason, fares have. My Mumbai ticket for later this week is just over Rs 5,000 one way. Two airline CEOs say there is little to choose between keeping the fare slightly higher and letting loads slip a bit and between lowering fares and letting loads rise a bit.
But what strikes one as even more bizarre is that while on some routes aircraft are alarmingly empty, no seats are to be found on others. A friend of mine who wanted to travel from Cochin to Bangalore on a Monday afternoon found he could not get seats on any carrier till Wednesday morning.
Many people I meet are convinced that there is some kind of cartel operating. An unhappy letter I received from a reader in Hyderabad said that air fares had gone up more than could be justified by the oil price rise and that he was surprised that no one was examining or commenting on how there is a cartel operating.
To support his claim, he said that in the case of Hyderabad-Kochi as recently as April-May this year, the one-way fare was around Rs 3,000, up from around Rs 2,500 in October 2007. The route was served by two flights of Indigo, one direct and the other via Bangalore, as well as by Jetlite, Air Deccan and Spicejet, apart from full-service carriers.
Now, he said, Air Deccan has been withdrawn and replaced by a Kingfisher flight with a fare just around double. Indigo has cut one flight and on any day, the fare on Indigo and Jetlite are almost the same, around Rs 5,000. He says the same has happened between Hyderabad and Kolkata.
But allegations of cartelisation are - predictably - brushed aside as "plain ignorance" by Indian airline CEOs. Bruce Ashby, CEO of IndiGo (formerly with US Airways), patiently explains how it works in the US and why airlines need to be priced roughly the same to stay in business. His argument is that in the US also, on any given day, fares across similar category carriers will be exactly the same. This happens through a mechanism in which airlines are free to adjust their fares three times a day if they see a competitor priced lower.
However, what may hold true for the US may not necessarily hold true for India. Who stops airlines here from colluding on fares when even the laws to prevent such things happening are virtually non-existent? I'm not saying there is a cartel for sure but I can't say I'm certain there is not one either. And I don't really know how ignorant or aware passengers in India are but one thing is certain - they are pretty confused.
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