Reverse steep January cuts citing poor revenues, passenger growth.
The short-lived honeymoon of lower fares in January is over. In a shock reversal, major airlines Kingfisher, Air India, SpiceJet and IndiGo have more than doubled their lowest fares with immediate effect and scrapped the basic fare bucket of Re 1 to Re 100 from their inventory. Top-end fares, however, are unchanged.
As a result, passengers have now have to pay, for example, Rs 5,075 (one-way) for a flight on the Delhi-Mumbai route, the country's busiest, from Rs 1,950 last month. Some airlines dropped Delhi-Mumbai fares to Rs 1,600 in certain special promotional schemes.
A civil aviation ministry spokesperson, however, said national carrier Air India’s fares would remain 10 per cent lower than those of Kingfisher and Jet Airways.
Last month, airlines took advantage of lower aviation turbine fuel (ATF) prices to cut fares 50 per cent in a bid to raise dwindling passenger traffic, which fell 5 per cent in calendar 2008.
| REACHING FOR THE SKY Lowest fares in Rs | |||
| Low-cost carriers | Delhi- Mumbai | Delhi- Bangalore | Mumbai- Ahmedabad |
| Old* | 1950 | 2350 | 1300 |
| New | 5075 | 5625 | 2833 |
| Full-service carriers | Mumbai- Delhi | Delhi- Bangalore | Mumbai- Ahmedabad |
| Old* | 2300 | 3100 | 1900 |
| New | 6025 | 6600 | 3090 |
| * January Source: Makemytrip.com | |||
Fuel surcharge, however, has not been changed in the current round of fare increases.
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The new fares take passengers back to August-September levels when ATF prices were double their current rates. ATF accounts for 45 to 55 per cent of an airline’s costs.
Today's announcement is also at variance with Civil Aviation Minister Praful Patel's plea that airlines should pass on the benefit of lower ATF to passengers and that Air India will lead the way.
Analysts have hinted at possible cartelisation because all private carriers have raised fares by almost the same amount, a charge airlines strongly deny.
A senior official of the Monopolies and Restrictive Trade Practices Commission said: "We haven't studied the new fares yet, but if we are convinced that there is a case of price-fixing we have the power to take suo motu action against it."
Airlines argue that today's raises are necessary because the steep January cuts did not attract a sufficient number of passengers. Several claim they're no longer eyeing load factors (or capacity utilisation) but revenues.
“We confirm that on flights that can sustain higher revenue, we have closed low-fare buckets and are concentrating on selling higher-fare buckets. Kingfisher Airlines’ focus is on earned revenue and not higher seat factors,” said an official statement from Kingfisher.
“There is a slowdown anyway and we have calculated higher fares would give us higher revenue even as loads will be affected,” added Siva Ramachandran, VP, global sales for Kingfisher Airlines.
Agreed CEO of low-cost carrier SpiceJet, Sanjay Aggarwal, "Our revenues in December were better than what we got in January even though we got better load factors last month. I have always said these low fares are not sustainable. We needed 105 per cent loads to break-even on those fares. Now the break-even loads will come down to an achievable 60 to 70 per cent.”
A possible consolation for travellers could be that from here, the airlines may cut the fuel surcharge.
Also read:
Feb 6: Airlines fail to benefit from fare fair
Jan 1: Fare cuts to jack up airlines’ losses