Kingfisher cuts basic fare, impact on ticket 20%

Full service carrier Kingfisher Airlines today announced that it has cut domestic basic fares by up to 65 per cent, indicating an average reduction of around 20 per cent in overall fares. Kingfisher's announcement follows moves by rival Jet Airways and national carrier Air India to cut their basic fares by an average of 50 per cent and 40 per cent respectively.

Jet Airways also announced some special fares for its international routes today, including Singapore, Hong Kong, Bangkok, London and New York.

"The falling prices of jet fuel facilitate such initiatives, which will benefit consumers and also stimulate the industry. We will aggressively pursue sales and share and this will help sustain increased load factors in the shoulder season between February and April," said Vijay Mallya, Chairman and CEO of Kingfisher Airlines.

Last week, Kingfisher had announced a range of fare cuts without specifying the quantum of cuts across sectors.

While domestic fares have been marketed well, the airlines have kept the artificial floor of fuel surcharges intact at Rs 2,500-3,000.

Extending the fare cuts to the international routes, Jet Airways today announced special fares such as a Rs 7,480 basic return fare for a Mumbai-Singapore flight, while the usual economy fare for the same flight costs Rs 32,500. A Mumbai-New York economy class return ticket would now come at a basic fare of Rs 32,600 while the usual economy class return tickets would cost more than Rs 1 lakh. However, there is an extremely limited inventory at these fares.

The prices of aviation turbine fuel (ATF), which accounts for the more than 50 per cent of an airline’s costs, have come down by around 60 per cent compared to the prices in August. As a result, ATF currently accounts for less than 40 per cent of an airline’s costs. Mark Martin, senior advisor, KPMG, said, "Airlines are thinking smart. They know they can damage themselves by pricing aggressively, so they are keeping their long-term interests intact by retaining the fuel surcharge. At the same time, they have realised the need to stimulate the market, and hence the fare cuts."

Now, Re 1 tickets are back

The Re 1 tickets are back with a vengeance. Delhi-based low cost carrier IndiGo today introduced special advance booking at a basic fare of Re 1-Rs 99 across several sectors.

A few days ago, SpiceJet announced special fares of Rs 99 across all sectors, while Jet's value carrier subsidiary JetLite announced a cut of around 40 per cent across all sectors and special advance booking basic fares starting from as low as Rs 9.

The Re 1 scheme will be applicable for tickets booked 21 days prior to the date of travel.

"Our overall bookings have gone up by around 70 per cent today compared to yesterday, after the lower fares have been announced," added Sanjay Aggarwal, CEO, SpiceJet.

However, some sources within the industry are of the view that low-cost carriers have had to cut fares to keep up with competition. "IndiGo and SpiceJet wouldn't want to be left behind when Jet and Air India have reduced prices. Also, the only way they can differentiate their product is by pricing it lower," says a well-placed official in a low-cost airline.

Also, the cut is in the base fares and not in the fuel surcharge as airlines don't want to go below a minimum threshold price per ticket," he said.