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 IndiGo, SpiceJet and GoAir cut fares by 30%

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Posts : 23
Join date : 2009-02-04

PostSubject: IndiGo, SpiceJet and GoAir cut fares by 30%   Sat Feb 21, 2009 8:26 am

Airlines, both low-cost carriers and their full-service peers, had in tandem raised fares from 6 February after the discounts of up to 50% that they offered for much of January proved unsustainable.

New Delhi: A mere 12 days after they significantly increased
fares, three of India’s low-cost airlines, which together fly almost
three out of every 10 passengers within the country, reduced fares on
most metro routes by around 30% on Wednesday, in the face of aggressive
sales by their full-service rivals and a slump in ticket sales after
the last fare-hike.

The decision was helped by a reduction in prices of jet fuel, which accounts for at least 40% of the operating cost of an airline.
Fare wars: Aggressive sales by full-service rivals were among the reasons for the low-cost carriers to cut prices.

Airlines, both low-cost carriers and their full-service peers, had in tandem
raised fares from 6 February after the discounts of up to 50% that they
offered for much of January proved unsustainable. That hike, seen as
collusive pricing or cartelization by some, resulted in a probe by the
country’s anti-monopoly regulator .

On Wednesday, IndiGo, run by InterGlobel Aviation Pvt. Ltd, and SpiceJet Ltd reduced fares from a minimum of Rs4,925 to a minimum of Rs3,833—a reduction of 28%—for the coming week. Fares for the week after on the same sector are down to Rs3,533, according to websites of the airlines.
Ticket prices of JetLite Ltd, a low-cost carrier unit of Jet Airways (India)
Ltd, and the Kingfisher Red service run by Kingfisher Airlines Ltd
remained priced at their earlier high levels until late Wednesday
evening. JetLite tickets on New Delhi-Mumbai continued to be priced at
Rs4,933 for next week; Kingfisher Red fares were also the same.

Tickets on GoAirlines (India) Pvt. Ltd’s GoAir, which also cut fares, were
priced lower at Rs3,750 and Rs3,220, respectively, on the same route
for the coming week and the one after.

With declining passenger traffic and with jet fuel prices being reduced across the country—by 3.3% to Rs29,158 a kl in New Delhi on 31 January—it became
almost imperative that air fares were reduced, said Sanjeev Bhasin,
assistant vice-president at travel portal Makemytrip (India) Pvt. Ltd,
confirming the reduction across most metro routes. The portal reported
“a drop of 25-30% on bookings” since the 6 February fare hike, he said.

“We were trying to sustain it by running some offer or the other. But it
was not going up at all,” Bhasin added. Jet fuel prices have more than
halved since the peak of Rs71,028.26 a kl in August last year.

A second travel industry executive said another reason for the latest cut
in fares by the low-cost carriers was that their full-service rivals
such as Kingfisher Airlines and Jet Airways had sold several hundreds
of tickets on discount, through coupons, for the weeks ahead through
travel agents at fares around Rs4,000 one-way on many sectors. With
such a huge inventory of tickets sold, low-cost airlines have realized
they stand little chance to maintain occupancy on flights and have,
therefore, reduced prices, said this top executive at a travel portal,
asking that neither he nor his firm be identified.

Even while introducing the latest fares, SpiceJet’s chief executive Sanjay Aggarwal said such lower fares were not sustainable.

“The fares such as Rs2,300 a ticket are nothing but experiments. Nobody
knows (the) answer to what is (the) right pricing strategy,” he told
reporters in Mumbai. “One will have to react to competitors. But we
cannot go back to the craziness that happened in January where air
tickets are lesser than a train ticket.”

Aggarwal said his airline needs an average seat occupancy in the “high 60s” on its flights, with ticket prices of between Rs3,800 and Rs3,900 to
break-even on its operations.

Such fare cuts, however, are needed to stimulate demand in February and March, historically months with low passenger demand.
Calls and text messages sent to IndiGo’s president Aditya Ghosh remain unanswered.
Low-cost airlines such as IndiGo and SpiceJet reported their aircraft 72.2% and
68.3% full in January, respectively, compared with December’s 75.5% and

Jet Airways flew its planes 64.8% full in the month gone by, while Kingfisher (including its Kingfisher Red service) reported an occupancy of 64%, and Air India, run by state-owned National Aviation Co. of India Ltd, 60.2%. These numbers compared with 60%, 62.8% and 60%, respectively, for these airlines in December.
On Wednesday, shares of SpiceJet gained 0.61% to close at Rs14.79 on the
Bombay Stock Exchange, whose benchmark Sensex index shed 0.22%. Shares
of Kingfisher were also up 0.61% and ended the day at Rs33.20 each,
while the Jet Airways scrip lost 0.16% to Rs156.30.
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