Hand luggage-only fare: Up to 15% cheaper for flyers, airlines benefit too

Aviation regulator DGCA on Friday allowed airlines to unbundle services including check-in baggage, meaning airlines can charge extra for them

Indian airlines are devising new fare structures where travelling without check-in baggage may turn out to be 10-15 per cent cheaper.

Last week, aviation regulator DGCA allowed airlines to unbundle services including check-in baggage, meaning airlines can charge for them extra.

Currently, it is compulsory for airlines to provide at least 15 kg of luggage.

Unbundling, or dividing the product or service into separate elements and selling them each at a different price, is a profit maximisation strategy mainly aimed at segmenting the market and attracting the price-sensitive customer.

This isn't the first time DGCA has allowed hand luggage fare. The last time it had, in 2016, it made it mandatory for airlines to charge only Rs 200 extra in case a flyer on hand luggage fare turns up with luggage at the airport.

“It just tied the hands of airlines and killed the initiative. A large section of people started booking hand-luggage only fare but turned up with bags. Rs 200 was not a big barrier. Airlines tried it for some time but couldn’t make it a commercial success,” an airline executive said.

But DGCA has done a crucial change this time where airlines are free to charge in this case. “This is a crucial change the regulator has made,” the executive said.

The new commercial freedom provided to airlines will allow them to device lower fare structures helping low cost airlines like IndiGo, SpiceJet, Go Air and AirAsia to entice their customers to travel at a time when the pandemic has severely slowed down air travel.

“Most of the Tier one routes which are between metro cities are heavily dominated by corporate traffic who normally travel with a laptop bag and return on the same day. They don’t need that 15 kg of baggage allowance. The new rules from DGCA will allow us to provide them with a lower fare structure,” an executive of a low-cost airline said.

On a corporate passenger heavy traffic route like Delhi-Mumbai, he sees hand luggage fare to be cheaper by at least Rs 500-800.

More so, this will push a change of habit for Indian consumers who have got accustomed to travel with large bags even if they don’t need it, executives said, drawing parallel with the days when a print out of ticket at airport was given free. “If you remember those days, there used to be a huge queue at airports to take a printout of their tickets. Airlines had to keep at least three staff stationed. Then we started charging for printouts. Do you see anyone now wanting a printout at airports?” a second executive said.

Moving passenger baggage is an intensely manual operation and costs airlines. Once bags are tagged, they are sorted and placed on trucks where they are manually loaded into the aircraft.

The unloading process is more cumbersome. Bags are taken out of the aircraft, loaded onto trucks to be driven into the airport carousel. For connecting passengers, it needs to be rerouted to a separate aircraft. Industry sources said that on an average, a single bag on a two-hour flight gets touched by at least eight people.

“There will be a massive cost saving for airlines if passengers get enticed by cheaper fares and decides to travel light. Additionally, one less bag in the belly means more chance of revenue from cargo,” the executive quoted above said.

An executive of a full-service airline said this will also be beneficial for them as they can now compete with low cost airlines by providing a lower class of fare.

The success of low-cost carriers, and the consequent loss of market share by full -service carriers, has prompted the almost universal adoption of unbundling by them. In 2018, full-service airline Vistara started a new fare structure under which passengers can buy a cheaper ticket but without a meal option.

“If price sensitive customers are happy to pay a lower price for the airline seat only and to forego all the other elements, then unbundling attracts incremental revenue that the airline would otherwise have missed,” an executive of a full- service carrier said.

However, analysts tracking the sector said cut-throat competition between airlines will not allow them to differentiate much. “Once the price control era of the government is over, a Delhi-Mumbai ticket will start selling for Rs 2,500. How much lower can an airline charge even that is a special hand-luggage only fare,?” the analyst asked.