)
While Jet Airways officials were discussing payment of salary arrears worth Rs 100 crore with their pilots, SpiceJet announced it was now the second largest domestic airline in the country overtaking Jet Airways based on July 2014 data.
SpiceJet said it had a market share of 20.9% as compared to 19.6% by Jet Airways and-JetLite combine in July. Indigo continued to be the market leader with a market share of 30.7%, marginally lower than 31.6% in the previous month.
SpiceJet said it had a market share of 20.9% as compared to 19.6% by Jet Airways and-JetLite combine in July. Indigo continued to be the market leader with a market share of 30.7%, marginally lower than 31.6% in the previous month.
What is creditable for SpiceJet is that while it beat Jet Airways in the numbers of passenger carried, the airline had the highest occupancy rate in the country, beating the market leader Indigo.
According to data released by Directorate General of Civil Aviation (DGCA) occupancy rate for SpiceJet stood at 79.4% for the month of July while the same of Indigo was only 67% and that of Jet Airways was 64.2%.
Jet Airways, in fact, had the lowest occupancy rate with even newly launched AirAsia beating it. Air India had occupancy of 69.6%, GoAir at 69.7%, Air Costa at 65.5% and AirAsia at 69.8%.
So what did SpiceJet do right and Jet Airways do wrong to deserve such positioning?
COO of SpiceJet Sanjiv Kapoor said in a statement: "Our increase in loads and share is the result of our new network, improved branding and product and, most importantly, our dynamic pricing and revenue management approach, where we believe flying empty seats is a waste, especially for budget airlines."
The airline has been aggressive with its pricing strategy and announced a series of discount sale program during the year. In an interview with The Economic Times, Kapoor said that for a low cost carrier it is a crime to fly empty seats. He adds that the pricing strategy on low fares is based on marginal costing and cost of carrying. Only 30% of seats are offered at a discount while the remaining is filled at higher prices.
SpiceJet has announced more than two dozen discount sales since January says a report in Livemint. The report quotes SpiceJet officials saying: “The entire SpiceJet family has put all their hearts into making SpiceJet grow in loads and share, flying fuller planes than ever before, demolishing the notion that you cannot fly full planes in lean season.”
But analysts are not too optimistic on the company’s strategy. While the discount sale has helped the company raise much-need working capital during an acutely-stressed time, sustainability of the pricing strategy is questionable. In a report on the company ICICI Direct says: “Given the company’s negative net worth (assets minus liabilities) of over Rs 1,000 crore and loan liability of Rs 1,500 crore, funding the operations, going forward, would remain a very challenging task for the company.”
Jet Airways on the other hand will have a tough time to regain its market share, especially after the management decided to discontinue the low cost operations. The airline has also shutdown some routes and redirected its efforts in trying to fill seats of Etihad who now own 24% of the company. It would now be difficult for Jet Airways to take back the market share as nearly 60% of their flight was in low cost category. Further, Jet Airways is desperate for cash and has sought a month’s time from its pilot to repay their arrears of Rs 100 crore, which means it will not have enough money power to fight go aggressive on their pricing strategy.
Further, the industry is getting in an overcapacity zone. Ameya Joshi, an aviation analyst has been quoted in Livemint saying that “With capacity expansion on fast track, it looks like the industry is going into an overcapacity mode in the days to come with multiple flights being launched. This will put pressure on yields and loads.” Vistara is expected to fly from October onwards which will be directly competing for market space with Jet Airways and Air India.
What the July data indicate is that fight of market share will only get bloodier as airlines would adopt predatory pricing to gain and hold on to their territory.
