Airlines fail to benefit from fare fair

New Delhi: The gap between the average fares of a full-service airline and a low-cost carrier (LCC) for metro routes narrowed by a third in January, thanks to leading players cutting their fares quite dramatically to grab the market share.
According to assessments made by aviation consultant Centre for Asia Pacific Aviation (CAPA), the average difference between the fares of an LCC and a full-service carrier, which was around Rs 1,500 in October-December 2008, has gone down to just Rs 500 to Rs 750 in January.
Executives of Indian carriers think that the difference is even smaller than Rs 500.
“While the average fare for LCCs have come down by around 45 per cent from Rs 3,800 to Rs 2,100, fares for full-service carriers are down by 55 per cent, from Rs 5,500 to Rs 2,500. The fares are back to the levels of 2005-06,” said a senior executive of a Delhi-based low-cost carrier.
In spite of the sharp drop in fares, the airlines could not increase the passenger traffic, which dropped by 10 per cent in January over the same month last year, according to an estimate by CAPA. While the market share of full-service carriers has improved, the widening cost-revenue gap will not be filled since the market is not growing in absolute terms.
CAPA CEO (Indian subcontinent and the Middle East) Kapil Kaul said: “Even though the gap between LCC and full-service fare has come down, it has not led to growth in passenger traffic. In fact with their cost much higher, full-service carriers will face more losses while LCCs have a cushion in terms of costs.”
Experts said low-cost carrier SpiceJet, which achieved an operational break-even in the December quarter, has lost that status since January since its realisation per seat has already gone below its costs.
With costs of a full-service carriers nearly four times that of an LCC, the move to cut fares without any increase in passenger traffic will force them to bleed further.Also, the fare cuts in January would have built a 10 per cent gap between the cost and revenue structure for LCCs and a much higher one for full-service carriers.
In its latest report on Indian aviation, CAPA estimates that the fourth quarter (January-March) could be the worst for the airlines.
06/02/09 Surajeet Das Gupta & Anirban Chowdhury/Business Standard

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Categories: Indian Aviation- In General Feb 2009