Saturday, August 13, 2022

In airline dogfight, fares drop except on certain routes

The two-plus year hiatus on price wars in the Indian skies has come to an end. As the government announced withdrawal of fare caps which have been in place since May 2020, airfares are nosediving in many sectors. This is likely to put an end to the regime of high air fares and squeeze profitability, putting financially weak airlines in a spot.

Airfares are now touching new lows. In fact, ticket prices are so low that on certain sectors like Delhi–Lucknow, they are lower than RCS-UDAN fares of similar duration. In this acronym happy country, RCS stands for Regional Connectivity Scheme, and UDAN for Ude Desh ka Aam Nagrik. The RCS-UDAN fares are subsidised and capped, while fares on all other routes are dynamic and largely driven by demand and capacity.

Soon as the circular was out, the undercutting started. An extreme fare war is in the offing on routes where Akasa Air is launching flights. With additional capacity on the same routes, the new entrant will face an intense fight for passengers.

The capacity and fare war started when Akasa Air announced its inaugural routes. On many routes like Mumbai-Ahmedabad, Bengaluru-Kochi, and Bengaluru-Ahmedabad, fares for September 1 are less than half what they were a week prior.

The war is so intense on the Bengaluru-Kochi route that airlines seem to be competing with bus services, as the airfare is cheaper than AC sleeper bus fare on the same date.

Such severe competition could either push the weakest player out of the market, or, if everyone decides to hang around, delay their path to profitability.

In high volume, high frequency sectors like Delhi–Lucknow, seats are available for just Rs 1,099. Though a similar short flight to Chandigarh costs Rs 3,000, a slightly longer flight to Amritsar is available for just Rs 1,662.

13/08/22 Ameya Joshi/Moneycontrol

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