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Come 2008, airlines to rethink fare strategy

By Anirban Chowdhury in New Delhi
December 19, 2007 09:45 IST
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The coming year will see a clear shift in trends in the strategies of both full-service and budget carriers as bottom line pressures compel them to change their pricing and configuration strategy.

While full-service carriers like Kingfisher and Jet Airways are cutting down on business class seats and concentrating on the economy and leisure travellers, low-cost carriers (LCCs) have made it clear there would not be any rock-bottom fares this season.

For starters, Kingfisher has cut down on its business class on key sectors from 32 seats to 20 and increased its economy class by 40 extra seats on some of its flights for key sectors like Delhi-Bangalore and Delhi-Mumbai.

"We will have the new configuration in the new A321s which will be deployed in certain routes during the non-business hours. We did it because calculations have shown that during some hours of the day it is more feasible to increase economy class seats and decreasing business class seats," said a company executive.

"While business class seats during the morning are mostly occupied, they go mostly empty during the afternoon, which is why the carrier has cut down on its business class seats," said Ashwin Damera, CEO and founder of travel portal, travelguru.com.

For instance, on the Delhi-Bangalore sector, a one-way flight will mean around Rs 2,80,000 more from these extra seats (Rs 7,000 per ticket), considering that its economy class is usually full for this sector.

However, it would have only got yields of Rs 1,70,000 even if around 10 of these 12 business class seats had been occupied. Kingfisher thus gets a benefit of around 64 per cent per flight from this change in configuration.

Damera said Kingfisher's case is different than Jet Airways which has various loyalty offers through which several economy customers upgrade their tickets to business class, thus ensuring a healthy load factor. However, in its newly "more leg room" configuration flights, Jet has also cut down on one of its business class rows.

Also, even as several low-cost carriers have made it clear that there can only be a fare hike this season, Jet has introduced its special weekend fares of Rs 500 across all sectors.

While Jet executives only said there were "tactical reasons" behind it, sources close to the company said this was done to woo leisure travellers which Jet has constantly been losing out on.

"Weekend or leisure travellers are not part of the corporate segment and would usually prefer a low-cost airline because of the low prices," added the source.

Also, full service carriers have been enjoying lower load factors than low-cost carriers (LCCs). While from January to October, load factors for private full-service carriers dipped below 70 per cent, LCCs have mostly enjoyed load factors in excess of 70 per cent.

The trend has been in the offing for a few months with a lot of LCC chiefs claiming that the days of low fares are gone.

Air Deccan Chairman G Gopinath has been saying that airfares across sectors will rise on an average by Rs 500-Rs 1,000. Deccan, which is usually at the forefront of offering festive deals, has not given any this season. Also, GoAir MD Jeh Wadia had said in October that their fares would go no further down than Rs 500.

"We usually get information about any seasonal offers at least two weeks in advance from the airlines, but we have not received the same this year," said a travel portal executive.

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Anirban Chowdhury in New Delhi
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