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How airlines will cope with increased fares

By Anirban Chowdhury in New Delhi
February 18, 2009 12:36 IST
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In a move to ensure that their passenger load factors do not fall dramatically as a result of the recent hike in fares, full-service carriers like Kingfisher, Jet Airways and Air India have sold travel coupons worth around Rs 300 crore (Rs 3 billion) to travel agents. The coupons, valid till the end of June, were sold a few days before the airlines almost doubled their fares in one go.

Experts say the full-service carriers have ensured 5-6 per cent of their average sales through these coupons. This, they add, will partly make up for the slowdown in demand that is expected due to the fare hike.

This will also give the big airlines an edge over low-cost carriers, none of whom, except IndiGo, have sold coupons in such large chunks. The fares offered by full-service carriers through the coupons are 20 per cent less than the new fares announced by the LCCs on key routes. Experts say the move will hit the passenger load factor of LCCs, which will in any case fall due to the increase in air fares.

Unlike their normal practice, travel agents were selling the coupons even in ones and twos to attract leisure travellers. "This is the first time we have sold coupons in such large numbers," said Siva Ramachandran, head (global sales), Kingfisher. Travel industry executives said Kingfisher sold coupons worth around Rs 80 crore (Rs 800 million).

Full-service carriers carry close to 2 million passengers per month. Taking the average ticket price to be Rs 4,000, the average monthly passenger revenue of a full-service carrier is Rs 800 crore (Rs 8 billion).

"The coupons were very smartly sold before the price hike. Now that the fares are up, every passenger, especially corporate travellers, want to either buy these coupons or redeem them if they have already bought them, since the price will be lower than what the low-cost carriers are offering on several sectors. Thus, these coupons will help full-service carriers take away a lot of traffic, especially corporate travellers, away from the LCCs," said Keyur Joshi, COO of travel portal Makemytrip. The portal purchased coupons worth around Rs 3.5 crore (Rs 35 million).

Travel agents agree that airlines have never sold coupons in such a huge bulk. "The sale of coupons on such a large scale has been unprecedented. The only low-cost carrier to have sold similar coupons is IndiGo, but its number is much smaller," said Vijay Kesavan, CEO of Mumbai-based Akbar Travels, which has bought coupons worth around Rs 5 crore (Rs 50 million).
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Anirban Chowdhury in New Delhi
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