Low-fare party goes on, but rising costs can hurt airlines in India

It is raining discounts in domestic skies with airlines dropping fares to woo passengers.

Air passengers in India have never had it so good as airlines have lowered last-minute fares to fill up seats in the lean season.

Air India is offering same-day return tickets for Rs 10,000 and Rs 25,000 in economy and business cabins on key routes, such as Delhi-Mumbai, Delhi-Bengaluru and Delhi-Kolkata, while return tickets for Rs 5,000 and Rs 12,500 in economy and business cabins on routes, such as Mumbai-Chennai and Mumbai-Bengaluru.

Other airlines are also taking steps to attract customers. Vistara is giving higher class upgrades to its corporate customers while Jet Airways is revamping its fare structure offering lower fares to passengers who do not opt for bonus miles and lounge benefits.

 

"Air fares have declined across the board and it makes no difference whether it is a full service or a low-cost carrier. All of them are competing for the same economy class passenger. LCCs are even offering frills to corporate customers such as choice of seat and free meals to attract those who would have preferred a full service airline," said John Nair, Head, Business Travel, Cox & Kings. 

An analysis carried out by online portal Yatra.com last month showed that last-minute fares on some routes are lower by as much by 50%. The portal said fares had declined due to lower jet fuel price and increase in capacity in domestic market.

While airlines are chasing passenger and revenue growth with discount fares, they need to watch out as costs keep moving up. While jet fuel price is still 3.8% lower on a year-on-year basis, it has risen 23% since January. Also rupee has weakened 5-6% against the US dollar increasing costs for carriers. Rising costs and lower yields will hurt airline profitability and at least one airline executive is calling for capacity moderation.

“I do not think we can take profitable 20% annual) growth for granted until we fix infrastructure problems at major airports and until capacity addition is more measured. Certainly, there is a huge potential in India, but in the next two-three years, the kind of aircraft we see coming is way above the market demand," said Sanjiv Kapoor, Vistara's chief commercial and strategy officer.