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Fare wars please fliers, hit airlines

Rediff Business Bureau

The latest joke in Corporate India: tickets, any tickets, are at a premium in India, always difficult to obtain. Be it cinema tickets, bus tickets, railway tickets. But there is an exception to every rule, and in this case, the exception is airline tickets!

Domestic airlines are crossing swords to woo the consumer with discounts and frequent flier packages. The clangs of clashing swords, so to say, seem to sound like music to the flier's ears.

India's civil aviation industry once comprised the two national carriers, Air-India and Indian Airlines. After the opening up of the sector in the early '90s, about 20 private operators took to the skies. The ravages of time have consumed most of them, victims of high import duties on spares and fuel and low passenger demand.

And the few survivors are seeking to become the fittest.

Jet Airways and Sahara Airlines are the two significant outfits in the private sector seeking to consolidate and strengthen their positions, come what may. State-run Indian Airlines has also suddenly become pro-active, adopting 'unconventional' strategies to remain the market-leader. It has recently vowed to "continue the battle to see the competition bleed".

In March 1999, Sahara kicked off the game by effecting across-the-board fare cuts ranging from 10 to 20 per cent on prime routes like Delhi-Bombay. Other routes like Bombay-Bangalore, Delhi-Madras, Delhi-Panaji also were made cheaper.

Initially, the fare cuts won over several passengers to Sahara. Jet responded by tying up with hotels to offer discounts on accommodation to its patrons. Package deals for tourists, bound for destinations like Goa, ensued.

IA hit back with a Bombay-Delhi shuttle service, but without any fare cuts. It introduced ten services a day on the route and exceeded Jet's frequency.

Both IA and Jet eventually resorted to price-cuts. And the Bombay-Delhi ticket price, for instance, plunged by more than 30 per cent to Rs 3,555 (Sahara). Air-India's night service is priced Rs 2,655. These prices are less than the first class airconditioned railway (Rajdhani Express) fare of Rs 4,180 and slightly more than the AC 2-tier fare of Rs 2,405. The normal Delhi-Bombay flight rate is Rs 5,110.

There is talk that IA may cut the fare further down to Rs 2,800, should it so choose, because at that level, it can break even if 80 per cent of the available seats are bought. But IA has decided to call off discounts from September 15.

Industry experts are not sure whether the fare wars would really end, though they agree that a long-drawn battle will wear out the private carriers. For Indian Airlines owns its aircraft and is state-funded whereas the private airlines survive on mostly leased birds. The margins in the industry are notorious for their thinness, and woo-customer schemes are bound to prove unsustainable in the long term.

A Delhi-Bombay flight costs an airline Rs 320,000. In other words, the private airlines will have to price their tickets in the Rs 3,800 to Rs 3,900 range to break even.

The 43-aircraft IA flies 26,000 patrons to 56 destinations, including 10 overseas stations every day. Jet Airways's fleet comprises 25 passenger jets, including 17 leased planes. Sahara's six-plane fleet has two leased aircraft. Sahara has plans to lease a dozen more shortly.

Fare cuts, the airlines seem to have learnt the hard way, bring plenty of media coverage and public attention, but little comfort in terms of increase in the number of passengers. In 1996-97, some 11.4 million passengers used airline services. In 1998-99, their number fell to 10.5 million. The figure is expected to shrink further this fiscal.

Speculation is rife that private airlines have realised that an all-out price war is not in their interest. They have reportedly sought to make peace with IA. But IA is in no mood to kiss and make up with its challengers.

The government-controlled airline has, in fact, intensified the fare war by extending discounts to new zones. So: 25 per cent off, on Bombay-Ahmedabad, Bombay-Mangalore, Bombay-Kochi, Bombay-Baroda and Bombay-Calicut sectors.

IA had also offered two free tickets to any of its 10 international destinations to passengers who can notch up 10 trips from July to September 15 between the cities of Bombay, Calcutta, Madras and Delhi.

Jet and Sahara were left to merely take a bird's eye view, unable to match IA's 'largesse'.

Industry analysts suggest that private airlines should expand their fleet if they want to enjoy the economies of scale. A large network, stepping up of frequencies, more non-stop services and strict maintenance of flight timings are essential, they underline.

Commentators have also not approved of IA's discount spree. It is run on tax-payers' money, it is a business enterprise, so it ought not to offer huge discounts at the cost of profits, they argue.

Since the airlines themselves set the runways on fire, they would do well to douse it in time. Else, the fire may consume them which is not exactly a good prospect for passengers. If anything, it would be Corporate India's next joke, they say.

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