Discounted airfares hurts airline industries

 

By Swati Khandelwal , CNBC-TV18:

 

Airlines, currently flying through rough financial weather could be further hit by a fresh round of price cuts by low cost carriers. GoAir and SpiceJet will soon offer airfares as low as zero to Rs 99 as the basic fare. Full service airlines are asking the government to intervene and introduce discipline in the pricing strategy in the sector.

 

As the off peak season takes off between July and September, airlines are getting ready to fight yet another hurdle; the low passenger load factor. Passenger load is expected to drop anywhere between 10% to 15 %. And airlines, especially the low cost carriers, are attracting customers with deep discounts. Tickets with basic fares as low as One rupee to Rs 99 are being offered. Low cost carriers say that this helps to get in bookings and rake in enough cash to stay afloat. But many others in the industry are unhappy with the pricing strategy.

 

Vijay Mallya , Chairman, Kingfisher Airlines said, "We are against the low pricing model. It's not fair to sell tickets below price."

 

Praful Patel , Civil Aviation Minister said, "We must have some rational pricing here. It's not right for someone selling tickets at lower price that it actually should be. We need to understand that it hurts the airline industry and has a cascading effect on the economy."

 

GoAir announced a zero basic fare on some routes last month. Taking into account the taxes surcharge which ranges between Rs 2,325 and Rs 2,725 depending on the route. A zero basic fare comes up to approximately Rs 2800. Similarly SpiceJet is offering tickets with a basic fare of 99 rupees. They say it helps the company build its sales volumes.

 

Siddhant Sharma, CEO, SpiceJet, "We follow a dynamic pricing mechanism, we attract a passenger load factor of upto 70-75%."

 

The question is whether this pricing will do any good to the airline or industry in the long run. Most analysts believe that this would result in such huge losses that a couple of low cost carriers may have to pack up and sell off.  Most airlines are already deep in red and such low fares would do nothing to improve bottomlines.