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Air fare discounts and entry of a new player

Instead of raising objections, it is time for existing domestic carriers to welcome a new member, Air Costa in their fold, and serve the travelling public

Just three weeks ago, on 31st January, SpiceJet offered a 30% discount to flyers who book at least 30 days before their travel date, and this was immediately matched by IndiGo, only to be followed soon after by Jet Airways.

 

To benefit from SpiceJet's lower fare, travel had to be completed by 15th April. The pace at which discounts have been offered, with riders, it would be in the interest of the traveller to seek the "latest" discounts available before scheduling a trip!

 

While this sort of price war is going on, mostly covering the domestic travel, what has been happening is the quiet establishment of Air Costa, a regional airline, based in Vijayawada, meeting the needs of tier I, II and III towns and cities in the southern region. This belongs to LEPL Group, and is the first regional airline based in the South, currently serving six locations. At present, the airline flies four E Jets - two E 170s and E 190s.

 

Since Air Costa plans to operate on pan India basis, they have signed a contract with Embraer SA of Brazil to supply 25 planes each of E 190 E2 and E 195 E2, estimated to cost $2.4 billion (at 2014 price list) with a purchase option to buy 50 more of these. According to the information available, E 190 E 2 are expected in 2018 and the E 195 to enter service in 2019.

 

Capt KN Babu, chief executive of Air Costa said that the airline would be adding four aircrafts a year and would have 20 by the time E 190 and E 195 are delivered. When the new aircraft is delivered next month (March 2014), they plan to add three more destinations, details of which are yet to be announced. He further stated that, at the moment, they have a 73% load and are not flying to crowded metros. They will be applying for a pan India licence soon.

 

Just to digress for a moment, many airline companies have to opened shop and have vanished due to high fuel prices and economic slowdown since 2008. Air Mantra operated flights between Amritsar and Chandigarh and closed due to poor booking. The others, who could not make it, include Star Aviation, ZAV Airways, Jagson Airlines and King Air, according to the media.

 

The fact is that according to the market information, combined revenues of airlines in India is estimated at $9.5 billion on which the loss is said to be $1.95 billion due to high operational costs and irrational pricing!

 

In the meantime, Air Asia, the Kuala Lumpur based low cost airline, which made headlines a few months ago and has support from the Tata group, is now likely to get the Air Operating Permit, despite opposition made by a cartel of Indian Airlines to the Director General of Civil Aviation (DGCA). In fact, DGCA had received 20 objections from Federation of Indian Aviation (FIA) and BJP leader Dr Subramanian Swamy, saying that "FDI by foreign airlines had been allowed into existing Indian airlines only but not for creating JV start-ups". This has been overruled by DGCA. FIA includes Jet Airways, IndiGo, SpiceJet and GoAir. Air India has not joined the fray!

 

The FIA has claimed, in support, that the new airlines (meaning Air Asia) "would intensify competition in India's debt-laden and loss making airline industry, which is burdened by $12 billion of debt and $8.6 billion of cumulative losses".

 

Air Asia, on the other hand, is proceeding to conduct a demonstration flight and also display safety procedures, all of which may take two-three weeks before they get AOP on hand. The three member committee headed by the Director General (DGCA) have gone through the objections and complaints and have found no technical problem with the new airline being given a licence to operate!

 

Instead of raising objections, it is therefore time for existent domestic airlines to welcome a new member in their fold, and serve the travelling public. It is in their interest to establish realistic and yet economically workable and profitable prices so that it mutually benefits the airline and the travellers. Since slack season occurs in every industry, they would combine their expertise and seating capacity to ensure that every seat is taken and all flights have full occupancy. They must also come to terms in giving fair treatment to their own staff in terms of free or concessional fares, so that operations become viable. Why not ask the staff to use their concessional benefit, as far as possible, during the slack season? Why do they indulge in uneconomical price discounts? The fare should not at any point be just over the break-even. They may as well consider reduced flights to save fuel!

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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