Air majors take on low-cost carriers

Jet Airways, Kingfisher shift flights to low-cost platforms; experts expect a fare war.

Look forward to cheaper air fares this summer. With full-service carriers (FSCs) Jet Airways and Kingfisher Airlines shifting over 78 daily flights onto their low-cost platforms this week, low-cost carriers (LCCs) say they will see fares going down by at least 10 per cent on specific routes.

The two carriers have added around 9 per cent capacity on their LCC network through this move. Experts say the move will push the full-service carriers further in the red, as they will be reducing fares without a commensurate reduction in their cost of operations.

LCCs flew over 920 flights a day til recently. This has gone up with Jet Airways launching its Jet Konnect service, by moving eight aircraft to its new no-frills low-cost service. Similarly, Kingfisher Airlines has shifted 24 flights a day to Kingfisher Red, its low-cost service. The fares offered are 15 per cent lower than the normal economy fares of FSCs. Of course, food will not be served free.

This increase in capacity comes after LCCs hiked their capacity by 10 per cent in the last financial year, even while the overall market (in terms of passengers flown) fell 12 per cent. Simply put, LCCs gained at the expense of FSCs, the key reason why the latter are being forced to change tack.

LCCs say they are ready to take up the challenge. Says Ajay Singh, director in SpiceJet: “It is a suicidal move, as FSCs have higher costs, which only means they will lose more money.” Asked if there will be a fare war, Singh points out: “Remember, we have more flexibility in reducing our fares, because we have lower costs than them. It depends on what they do.”

Aviation experts say there will be a fare war, but FSCs will be adversely affected. “I see a short-term fare war, with LCCs dropping fares. However, with the operating cost of FSCs being 35 to 40 per cent more than the LCCs, the move cannot be sustained,” said Kapil Kaul, who heads Centre for Asia Pacific Aviation in India.

Travel portals say they do not see FSCs being able to sustain the battle. “FSCs cannot compete with LCCs, as they have to follow different norms and standards. So, the most feasible way to compete with LCCs is to start shifting capacity to low-cost arms. That is a smart move,” said Bhawna Agarwal, co-founder & head of air business, Yatra.com.

Agarwal says LCCs have already gone for aggressive pricing, not seen last year. “Every year, airlines come up with cheap fares in the summer season, but not like this year. I had never seen airlines offering 50 per cent cash-back offers. Now with Jet Konnect and Kingfisher Red, there are more flights to the routes where LCCs used to dominate,” added Aggarwal.

At least for now, there is still a small difference between the two class of fares. While a JetKonnect ticket from Mumbai to Ahmedabad for May 20 can be booked at Rs 3,128 (inclusive of taxes and surcharge) through its website, SpiceJet and Indigo offer tickets for the same date and sector for Rs 2,479.