Why Indian carriers are indulging in price wars, instead of considering the options of reductions in flight or even cancelling those that are loss making sectors?

Once again, domestic airlines in India have gone into a price war on offering economic and attractive prices to air travellers. According to information available, the Director General of Civil Aviation confirms that the air traffic grew by a 4.43% in 2012-13 and the scheduled airlines carried 61.42 million passengers, compared to 58.81 million in 2011-12, though during 2010-11 they carried 60.66 million.

Moneylife carried a detailed story on the fare price war that all the domestic carriers offered last month, during which time, Air Costa quietly began to work in and out of Vijayawada, reaching other nearby two-tier cities. It must be noted that these airlines suffered both rising fuel prices and sharp depreciation of the rupee.

When the price war broke out on domestic fares, it was SpiceJet, which set the rules, and all others followed. While full details of the offer have not been made public, in terms of sales thus obtained through slashed prices, it may be safely presumed that the response was overwhelming.

So much so, that, once again, SpiceJet and Indigo have offered low fares based on 30, 60 and 90 days advance purchase, also known as "apex fares".

This has been done to ensure that they have 100% passenger load during the peak summer season, covering April to September, with varying discounts between 10% and 35% from the normal fare. It must be borne in mind that when such low fares are offered, these are always conditional. SpiceJet calls their offer as Super Holi Sale, which started on 12^th and will close on 16^th March! Readers of Moneylife, who are interested in these special deals, would do well to contact their travel agent, so as not to miss this opportunity.

It may be recalled that the domestic airlines through their Federation have petitioned to the Director General of Civil Aviation (DGCA) that Air Asia should not be given the licence to operate as this will cause immense harm to the existing industry in the country, leading to further losses. Public hearing and various "objections" on this issue have also been dealt with by the DGCA. In fact, it is now reported that, Aviation Secretary, Ashok Lavasa in the ministry is reported to have stated that they would not any airline from starting operations in the country based on objections from existing airlines!

In other words, they would rather go by the book on well laid policy guidelines on these matters!

In a separate development, SpiceJet is reported to have finalized their new set of orders to buy 42 Boeing B 737 Max planes at an estimated cost of $4.4 billion and deliveries are expected to commence from 2018 onwards. According to S Narayanan, chief financial officer, this deal includes swapping of existing orders for 12 Boeing 737 planes, and they expect to fund this acquisition by selling and leasing backing the planes. It is also reported that these Max planes have the potential to save the airline at least 14% in fuel costs.

Sanjiv Kapoor, chief operating officer of SpiceJet appears to have stated, according to the media, that a fresh route plan, starting from 30^th March is expected to be announced, resulting in an estimated 20% increase in productivity.

All these are encouraging to note, while, what is depressing to read is the reported record loss of about Rs1,186 crore in 2013-14, which is equal to the combined loss incurred between 2007 and 2013, according to the consulting firm Capa, which again has been reported in the media. One, therefore, wonders why, in such a case, indulge in price wars, instead of considering the options of reductions in flight or even cancelling those that are loss making sectors?

In the next few weeks, chances are Air Asia will begin to operate, whether other domestic carriers like it or not!

So, when the issue of "objections" by other domestic airlines was brought to the notice of Tony Fernandez, group CEO of Air Asia, he is reported to have stated that "the only way to win is to beat me in better produce and price; not through protection and courts. Let the consumers decide".

The only suggestion that the writer can make to Air Asia is to beat all the domestic airline operators by offering one additional service and that of pick up and delivery of passengers by Air Asia coaches! A study of taxi fares to and from airports would reveal that this charge is almost 30% to 40% of the airline ticket! In the past, passengers could use the domestic bus service to and from airport, at nominal rates, and that was run by retired ex-service men. Why and when they stopped is not known, but, today, cab fares are exorbitant and sometimes unsafe. For a few dollars more, Air Asia can take care of this need!

(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.)