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Nov 01, 2012, 09.49 AM IST | Source: Moneycontrol.com

Have airlines formed a cartel for fixing fares? Find out

An event organized by CAPA in Mumbai has sparked off a big debate on whether airlines are actually fixing air fares. During a discussion, airline chieftains were on one side defending themselves of the allegation leveled by Captain Gopinath, founder of erstwhile Air Deccan that airlines have formed a cartel in fixing fares.

Moneycontrol Bureau

An event organized by CAPA in Mumbai has sparked off a big debate on whether airlines are actually fixing air fares. During a discussion, airline chieftains were on one side defending themselves of the allegation levelled by Captain Gopinath, founder of erstwhile Air Deccan that airlines have formed a cartel in fixing fares.

But how strong is Gopinath's argument vis-a-vis airline CEOs?

According to makemytrip.com, a one-way seat on the Mumbai-Delhi sector costs Rs 7600 on IndiGo, SpiceJet and even GoAir for a November 7 flight. A seat on the same route would cost slightly above Rs 8,000 on Jet Airways and Air India.

At ezeego1.com, the fare for Indigo, SpiceJet and GoAir--all low cost (LCC) are constant at Rs 7,500, while full service carriers (FSC) Air India and Jet Airways had fares at around Rs 8,000 and above levels. A customer care executive informs that fares also depend on seat availability with a particular airline and the season for which one is booking a seat.

A seat on yatra.com too displayed a gap of Rs 1,500-2,000 between full service and low cost carriers. Similar fares on both category airlines prove that there is stiff competition to grab higher occupancy when air traffic is declining month-on-month. In fact, in an annual general meeting of Jet Airways last year, chairman Naresh Goyal had said that the industry is changing towards low fares and hence his airline too is offering more seats in the low cost segment called JetKonnect. But in reality, even Jet Air had lowered fares to be at par with SpiceJet and IndiGo to grab a higher market share.

Due to marginal difference between fares on no-frills and full service airlines,  revenue earned per kilometer for both--FSC and LCC is around Rs 4.60 and hence despite operating costs being higher for bigger carriers, their revenue per passenger is the same as their no-frills counterparts.

Subash Goyal, chairman STIC hospitality Group says that predatory pricing is ruling the market at a time when most airlines are bleeding.  Being no frills in nature, SpiceJet, IndiGo and GoAir do not serve meals on-board and hence are quick to turn-around the airline for another service. Whereas, bigger carriers like Jet and Air India take longer time to turn around the aircraft for another trip as their crew needs to do up the aircraft before it's next trip. How can FSCs survive by fixing fares similar to no-frills airlines when the entire biz model is diffrent ? he questions.

Tour operator, Rajesh Rateria from Cirrus Travels hinted that predatory pricing is an observable fact in the industry " For customers, pricing is important in comparison to the airline in which they are booking a seat on. Even a Rs 200 difference matters in a price-sensitive market. Due to stiff competition airlines across board have been fixing fares as per the trend. " he adds.

 

 

Jet Airways stock price

On October 31, 2014, Jet Airways closed at Rs 232.25, down Rs 0.7, or 0.3 percent. The 52-week high of the share was Rs 357.50 and the 52-week low was Rs 203.50.


The latest book value of the company is Rs -196.11 per share. At current value, the price-to-book value of the company was -1.18.

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