Fares should help airlines to break even

Air India reduced its basic fares between 35% and 82% on more than twenty routes, with some prodding from the aviation minister.
Other airlines have followed its lead. The fall in even the overall fares on some routes has been substantial. On the Mumbai-Chennai route, Air India’s overall fare reduction is 44%. Other airlines have been more cautious. While Jet Airways has reduced their Mumbai-Delhi fare by about 32%, it has been more restrained on most other routes. SpiceJet has been even more prudent.
Obviously, such massive fare reductions on some routes will improve load factors. However, they will push up the break-even load factors even more sharply. At the very low fares, break-even could be at close to or even beyond 100%. Clearly, the airlines will be the net losers on such routes — with Air India being the biggest loser of all. The highest fare cuts are on the routes with the poorest loads, the greatest overcapacity and the most intense competition.
Clearly, the airlines should charge fares at which they can break even financially and at attainable load factors. All other considerations are immaterial.
All airlines are deep in the red, with debilitating second quarter losses — Rs 384 crore for Jet, Rs 483 crore for Kingfisher, and Rs 198 crore for diminutive SpiceJet. This year, Air India may account for half the losses of all Indian carriers, amounting to over $1.5 billion — the second-highest for any country’s airlines. Additionally, there are huge accumulated losses of past years that will take several years of profitability to wipe out.
05/01/09 Hormuz P Mama/Economic Times

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Categories: Indian Aviation- In General Jan 2009