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Budget carriers' price war to take toll on sector: Airlines

By Sharmistha Mukherjee
October 30, 2014 12:28 IST
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An Air India aircraft

Full-service airlines have flagged up concerns about the financial health of the domestic aviation industry on account of frequent flash sales announced by budget carriers.

Taking note, the ministry of civil aviation has resolved to monitor discount schemes announced by domestic airlines and look at measures to curb predatory pricing.

A senior official in the ministry said, “The airlines have raised concern about budget carriers offering fares below the cost price.

"The airline industry is already burdened with heavy losses and we are looking at ways to ensure Indian carriers do not go bust on account of following such a practice.”

The ministry is considering constituting a team to monitor discount schemes.

“The concern is all these schemes have not been initiated by financially-strong carriers,” added the official.

The industry has seen a spate of discount offers since January, most by SpiceJet.

The frequent flash sales have forced others to lower fares to remain competitive.

The marketing initiatives to fill unused inventory seem to have paid off, with SpiceJet registering the highest passenger load factor, or capacity utilisation, during September at 85.9 per cent.

Overall, the domestic air traffic, too, went up 9.75 per cent to 49.2 million passengers between January and September against 4.4 per cent in 2013.

But margins of all domestic carriers remain under pressure.

The country’s top-five domestic airlines reported losses of Rs 9,737 crore (Rs 97.37 billion) for the financial year ended March, an increase of 85 per cent over Rs 5,276 crore (Rs 52.76 billion) a year earlier.

But for the net profits of Rs 323 crore (Rs 3.23 billion) reported by GoAir and IndiGo, the losses would have been steeper at Rs 10,060 crore (Rs 100.6 billion).

While Jet Airways’ net loss went up seven-fold to Rs 3,668 crore (Rs 36.68 billion), that of SpiceJet too shot up four times to Rs 1,003 crore (Rs 10.03 billion) in 2013-14.

IndiGo’s profit dropped by 60 per cent to Rs 317 crore (Rs 3.17 billion) in the last financial year.

The Wadia-promoted GoAir too saw its net profit slump to Rs 5.5 crore (Rs 55 million) in 2013-14 from Rs 104 crore (Rs 1.04 billion) in the previous year, according to the airline’s balance sheet filed with the ministry of corporate affairs.

Last week, the Air Passengers Association of India wrote to the Directorate General of Civil Aviation complaining about discount schemes.

The APAI said it had monitored schemes offered by Indigo, SpiceJet, and Jet Airways-Jet Konnect (which had last Wednesday announced special fares for travel from November 1 to December 15) and found tickets were unavailable at discounted prices.

The airlines had offered one-way tickets between Rs 899 and Rs 1,799 on a few sectors provided these were booked between Wednesday and Sunday.

"The DGCA must put an end to this practice of offering ridiculously low fares which are non-existent and are not really available to the passenger," Sudhakar Reddy, president of APAI, said in his letter to the DGCA.

SpiceJet COO Sanjiv Kapoor countered the APAI’s claims that the schemes are fraudulent in a twitter response, “If these fare sales were fake, how would the industry see 28 per cent growth in pax (passengers) last month year over year? . . . Clearly APAI wants higher fares for all passengers than lower fares for some passengers, those who move quick to grab deals. . .”

INTERNAL FIGHT

  • Flash sales have forced airlines to lower fares
  • But the margins of most domestic carriers remain under pressure
  • The top five domestic airlines reported combined losses of Rs 9,737 crore (Rs 97.37 billion) for the financial year ended March

Image: An Air India aircraft. Photograph: Reuters

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Sharmistha Mukherjee in New Delhi
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