DGCA blocks SpiceJet's Re 1 ticket offer

Says airline misleading consumers by earmarking only 2% of ticket inventory for the scheme

Hours after SpiceJet launched a discount scheme on Tuesday, the Directorate General of Civil Aviation (DGCA) directed the budget carrier to withdraw it.

DGCA justified its unprecedented action, saying the airline was misleading consumers by earmarking only two per cent of its ticket inventory for this offer but creating a hype in the market.

The regulator also said the scheme would distort the financial health of the country’s aviation market, already reeling under heavy losses.

A senior DGCA official said: “We have asked the airline to discontinue the offer with immediate effect. It does not make any financial sense to offer tickets at Re 1. The inventory on offer is negligible and the offer will distort the market and mislead consumers.”

Confirming the development, SpiceJet said it had already responded to the DGCA’s letter.

“In all of our advertisements for this sale, we clearly state that fares were starting at Re 1 (inclusive of fuel surcharge) and seats were limited like any other previous offers. We have sold many thousand seats at that price to passengers who booked early, we took care to ensure that fare was available on all direct routes, especially on traditionally lower load factor days,” SpiceJet said.

According to the airline, its discount offer is not intended to reduce or eliminate competition but to stimulate demand. “With a market share of 20 per cent, we are not in a position to be predatory,” it said.

SpiceJet also notes AirAsia and Tiger Airways have had numerous fare sales even for flights originating in India, where the base fare was Rs 0 (excluding fees and taxes but including fuel surcharge). Domestic airlines in India, too, have come up with similar offers in the past where they charged Re 1 fares, it added.

“This kind of low fare market stimulation and inventory management (if done properly) is essential for the LCC (low-cost carrier) business model, and is a key part of the strategy for low-cost airlines such as Air Asia, RyanAir, Southwest, EasyJet, etc, globally, and benefits the wider travel industry and economy at large due to the stimulation and ‘economic multiplier’ effect. As a low-cost airline in a market where demand is currently soft but costs are amongs the highest in the world, we are trying our best to be innovative and adopting the best practices from global LCCs to attract more customers and improve our revenue performance.”

SpiceJet triggered a fare war on Tuesday — for the fifth time this year  — by launching a three-day sale with base fare starting at Re 1. Discounted tickets were also made available at Rs 799 and Rs 1,499 (plus taxes and fees). The discounted tickets are valid for travel between July 1, 2014 and March 28, 2015.

According to travel sector sources, following SpiceJet’s offer, market leader IndiGo, too, has started scaling down fares on certain routes from Delhi. The airfare sale will adversely affect the domestic aviation industry, which according to aviation consultancy firm Centre for Asia-Pacific Aviation (CAPA), is projected to post a combined loss of $1.2 billion in 2013-14.

Sector insiders said SpiceJet had launched a series of discount offers over the past two months to improve cash flows and clear dues to its vendors. SpiceJet had posted net profit of Rs 50.6 crore in the first quarter of the last financial year but accumulated losses of Rs 732 crore in the second and third quarters.

In January 2013, the aviation regulator had advised airlines not to slash fares in response to SpiceJet’s offer of a million discounted tickets. But at that time, it had refrained from issuing a formal notice. it said the discounted offer would only serve to benefit regular fliers and not bring in new ones, poaching other airlines’ traffic.