Low fares to hit bottom lines of airlines: Analysts

It's raining discounts from the sky. Amid cut-throat competition to grab a larger pie of the market share, airlines are offering fares as low as Rs 500, even though analysts are warning about an adverse impact on bottomlines, already burdened under high fuel prices.

While budget airlines such as Air Deccan, Jetlite and IndiGo are doling out tickets for Rs 500 on various sectors, full-service carriers such as Air India are also offering fares as low as Rs 999 for a one-way journey.

Not to be left behind, carriers flying on international routes are giving discounts up to Rs 5,000 on a ticket, besides offers such as free hotel stay and 50-100 per cent waiver on companions' fare being announced by both domestic and international fliers for bulk bookings.

However, at the consumers' end, it is not as rosy as it appears on the ground. The discounted fares of Rs 500 and Rs 999, being offered by the carriers, do not include taxes, transaction fees, fuel surcharges and other additional costs.

Actual fares after taking into account these charges turn out to be more than double those advertised. Still, the offers are a good bargain, as the discounted fares are still about half the non-discounted ticket cost.

However, analysts expect these discounts, which have resurfaced after some time, to impact the companies' profits for the fourth quarter of the current fiscal as well as the first quarter of next fiscal. Most of these offers are valid till June 2008.

Citigroup analysts said in an equity research note on the Indian aviation sector that discounting has recommenced through the industry "after a 3-4 month lull during which players exhibited rational behaviour."

Analysts, Jamshed Dadabhoy and Hitesh Goel, said the extent and duration of discounts were surprising as players were offering tickets at Rs 500 for many routes, including lucrative ones such as Mumbai-Delhi.

"We think it will adversely impact profitability into both Q4 FY08 and Q1 FY09 as most of the offers are valid for journeys till March-June 2008," Citigroup said.

However, discounting is key to propping up growth and load factor over the near term, given the persisting capacity overhang and the sudden sharp increase in fares, it noted.

Besides, it goes in line with the theory that the industry would have to choose between profits and growth, and profitable growth would occur only once capacity growth slows down considerably and demand (not stimulated by discounts) has caught up with supply, the analysts said.

While it seems that airlines have chosen the latter, air travellers may not be complaining given the benefits of this discount spree, even though they would have to plan their travel a little in advance to enjoy these offers. Most of the discounted fares of Rs 500 or Rs 999 are valid on advance booking of 45 days.

Jet is giving the discounted Rs 500 fares for 45 days advance booking, while GoAir is asking the passengers to fly "smart" between January 13 and June 30 at this price.

Air Deccan is giving out one ticket free for every six tickets purchased and two free for every 10 purchased, while full-service carriers such as Jet Airways and Air India are selling tickets at throw-away prices, anywhere between Rs 500 and Rs 1,000.

Jet Airways is also offering two premiere class tickets at the cost of one, under its Companion Fare offer, valid till March 31, while it is also giving Rs 500 tickets for economy class weekend journeys till February 10.

A number of online flight facilitators have also joined the fray, offering alluring packages and air fares at discount. Almost all such websites, including cleartrip.com, makemytrip.com, yatra.com, rediff.com and indiatimes.com are providing discounted fares, while some of them have also come out with attractive accompanying hotel stay packages.

Yatra.com is promising Rs 1,000 cash back if booking is done through mobile, while it is also offering Rs 500 discount if both flight and hotel booking is made through them.

Cleartrip.com is offering Rs 999 Air India tickets and Rs 505 tickets for flying Jetlite. For a round-trip flight on Kingfisher First , it is offering the customer a chauffeur-driven luxury car, in addition to a round-trip flight free on booking a two-night stay at any Oberoi property.

Billionaire businessman Vijay Mallya-headed and premium airline Kingfisher is also trying to cash in on the trend of discounts with its companion offer, valid till March. This promises a 50-per cent discount on a lady companion's ticket.

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Budget airlines such as Air Deccan, Jetlite and IndiGo are doling out tickets for Rs 500 on various sectors

Air India offers fares for as low as Rs 999 for a one-way journey

International players are giving out discounts up to Rs 5,000