Airfare wars are back as Indian skies get busy. Recently, full-service carrier Vistara kicked off its sixth birthday celebrations with a sale. After air services resumed in late May following weeks of coronavirus-induced lockdown, the Indian aviation industry has not seen the kind of sales it is used to before the outbreak. Airlines now have to adhere to floor and ceiling prices on fares.
Budget airline SpiceJet in August was the first to offer discounted tickets after the resumption of services but had to pull the sale back after a rap from the Directorate General of Civil Aviation (DGCA). The airline was offering a free ticket for every ticket purchased, which was termed a violation of the fare-cap guidelines.
Vistara, jointly owned by the Tata Group and Singapore Airlines, was smarter. The sale period—January 8-9— coincided with its anniversary but tickets were for travel beyond the fare-cap period. But the fare-cap period was extended to March 31 and the airline quickly readjusted the dates.
No sooner had the sale began than low-cost carriers jumped in. SpiceJet, AirAsia India and IndiGo announced copycat sales.
Bad old days
After months of hibernation, the Indian aviation industry was back to its old ways—cut-throat competition, undercutting each other and selling below cost. Indeed “sale” is a mechanism to shore up bookings, fill up seats and get additional cash flow in times of need. A good sale is the one that juggles all three well and not just the flow of cash.
IndiGo and AirAsia India are offering fares starting at Rs 877 while SpiceJet’s offer is Rs 899. The travel period for discounted tickets for all three airlines is from April 1 to September 30.
The lowest fares are for short routes like Guwahati- Imphal or Agartala-Imphal. The floor price set by DGCA starts at Rs 2,000. While the sale window is perfectly legal, it highlights what could have happened had the government not set a price range.
What does this mean?
When flights resumed in the last week of May 2020, airlines were asked to sell 40 percent of the seats below a fare which would be the median of their lowest and highest slabs. While the fare restrictions have been extended to March 31, the median fare mandate has been brought down to 20 percent seats.
Note that airlines have fixed the period of booking discounted tickets from April 1 when the fare restrictions would lift.
Now, airlines have to sell 20 percent of the seats below the midpoint of the fare range and the remaining can be priced higher. Even if they are below the ceiling price, the fare would be higher than the median fare. This is based on assumption that the market starts performing better.
If the fare cap was not extended, airlines would have gone back to “normal”, where a flash sale by one is a signal to others to match the offer.
Coronavirus cases have been falling and India will on January 16 kick off the worlds’ biggest vaccination drive against COVID-19, a move expected to help businesses and the economy but the fact is aviation has hit turbulence in January. After consistent growth in passenger numbers from September, January has seen traffic grow only 3 percent month on month.
Has the fare cap helped?
Except IndiGo, most airlines were sitting on a debt pile when the country went into a lockdown in late March 2020. It meant that there was always going to be a shortage of cash for everyone.
Without a government bailout, the much-maligned system of fare bands helped. Without self-discipline and the fire sales that have come to define the Indian aviation industry, the sector was staring at a disaster, one that could have led to the grounding of one or two airlines.
While the government is criticised for meddling with carriers and free-market pricing, an airline going down would have invited more criticism and challenges on multiple fronts. Two airlines shutting down in two successive years is the last thing a government needs.
While aviation may not be a big employer, it does create ripples when something goes wrong in the sector.
Airlines have a tough time ahead. Earlier the fight was to get more first-time passengers, the challenge now is to get flyers back in the airplanes and that will not be easy—no matter what various airline surveys say.