You have a chance to match Google executive Alan Eustace’s record of travelling faster than the speed of sound. Figuratively speaking, that is. Eustace created his record jumping off the edge of space. If you are lucky enough, you may create a record by booking cheap domestic air tickets that get exhausted at lightning speed.
“We’re selling cheap tickets on domestic routes. But they’re just a few in number. So, move fast to grab the deals,” egg on the air carriers. The scramble for tickets is understandable but how many people actually get hold of one?
Since January 2014, airlines have been on a deep-discount-fare-marathon on domestic routes. Low-cost carrier (LCC) SpiceJet alone has run some 20 flash sales since January, forcing not only fellow-LCCs Indigo and Air Costa but even full-service carriers like Jet Airways and Air India to follow suit.
Just ahead of Diwali, Jet Airways, Indigo, SpiceJet and Air Costa announced schemes offering seats for as little as `899, including taxes, on select routes for travel from November 1. Earlier, in April, the cash-strapped SpiceJet had offered a `1 fare, inclusive of fuel and surcharge, on select routes. In August, the loss-making Air India doled out tickets for `100, excluding fee and taxes.
Not everyone thinks these are for real. “It has become routine for airlines to announce schemes once every 10-15 days. The schemes and fares are similar. How can this happen unless a cartel is working to fool the travelling public?” questions D Sudhakara Reddy, national president, Air Passengers’ Association of India (APAI). The 24-year-old APAI, which has over 10,000 active members, wrote last week to the Directorate-General of Civil Aviation (DGCA) to investigate if the offers are genuine and to step in if they weren’t.
“We strongly believe that the DGCA must put an end to this practice of offering ridiculously low fares that are non-existent and are not really available to the passenger. These are available only for publicity,” Reddy said in the letter, a copy of which is available with The Sunday Standard.
The passenger association’s action has irked the carriers, with Sanjiv Kapoor, COO, SpiceJet taking to Twitter to refute APAI’s claims. “If these fare sales were fake, how would the industry see 28 per cent growth in pax (passengers) last month, year over year?” he tweeted. When contacted, Indigo declined comment on ‘this’ topic, while Jet Airways said it wasn’t worth discussing.
But if the carriers started their deep-discounts early this year, why has APAI woken up only now? Here’s why. Initially, says Reddy, the offers were transparent. For instance, in January, SpiceJet offered one million domestic seats at an all-inclusive fare of `2,013, while Jet Airways sold 20 lakh seats priced at `2,250-`3,800.
In the absence of regulatory intervention from the beginning, the carriers are free to go into frequent nosedives. They also do not have to disclose the number of seats they are selling in each price bracket to anybody, not even the DGCA. “So fares dip to dramatic lows (e.g., fly @499, @899), offers become frequent, but it’s almost impossible for customers to get hold of any of the tickets. When customers look for the advertised fare, they find the sold-out notice flashing on their screen within the first few minutes of the bookings opening,” points out Reddy.
According to the Jet Airways spokesperson, that’s because the promotions are offered on a first-come-first-served basis and are entirely subject to availability.
The truth is there are only a handful of discounted tickets up for grabs. “Typically, the internal target will be to offer about 5 per cent of the seats in the lowest price bracket,” explains Vivek Choudhary, CFO, Air Costa. This translates to nine seats in a 180-seat aircraft and five seats on smaller flights. “Usually, travel agents and airline employees are aware of forthcoming offers. As soon as the inventory is opened up, they grab the low-priced seats,” adds Choudhary.
Amber Dubey, partner, head of Aviation, KPMG, says: “Even in peak tourist season, average occupancy levels are in the low 80s. That means that for every full flight there is another flight which operated with 60 per cent occupancy. It is these low-occupancy flights that are carefully chosen for deep discounts.”
Vinay Gupta, co-founder, Trip Factory, believes the discounts are genuine and help the airlines fill their planes. “Nearly 2 lakh seats are available daily across all domestic routes, of which nearly 50,000 fly empty. With carriers offering discounts, this has now reduced to 25,000,” he says.
That may be true, especially in the case of the LCCs. Indigo filled 78 per cent seats on an average on all its domestic flights in September 2014, up from 70 per cent in January 2014. Go Air’s seat occupancy rose from 70.1 per cent to 82.3 per cent in the same period, while SpiceJet shot up from 70 per cent to 86 per cent.
“Tens of lakhs of people in India have benefitted from these sales this year...We believe our market stimulation since January has been perhaps the single biggest driver of the year-on-year Indian air travel market,” claims Kaneswaran Avili, chief commercial officer, SpiceJet.
As per DGCA data, between January and September 2014, domestic air passengers rose by 7.55 per cent at 49.2 million, up from 46.6 million a year ago.
Is this solely due to low airfares? Not really. By SpiceJet’s own admission in its Annual Report 2013-14, passenger load factor in FY14 fell to 72 per cent from 74 per cent in FY13 due to the “general state of economy” and the company “increasing fares” to offset costs. In FY14, ATF prices rose by 8 per cent and the rupee weakened by 12 per cent contributing to higher fuel costs and other structural costs, leading to higher airfares.
With the economy improving in 2014, rupee stabilizing, inflation easing and ATF prices coming down by 3.2 per cent after June, it seems only natural for air travel to gain pace.
Through increased market share and improve cash flows, for a start. Budget deals help carriers in getting a base load in advance, explains Choudhary of Air Costa, which has announced nine offers so far and plans to introduce a standard fare to Visakhapatnam.
According to Gupta of Trip Factory, discount offers improve cash flows of carriers and reduce their debt (since they get money in advance). This benefit is most pronounced for SpiceJet, whose total expenditure in FY14 at ` 715.54 crore is 12 per cent higher than its total revenue of `640 crore. “It’s only fair to offer seats on discount and encourage customers to book in advance rather than flying empty. It’s a win-win situation for all,” says Kaneswaran.
That may not be totally true. The LCCs appear to be gaining the most. While Indigo has maintained its pole position with a 32.1 per cent share in September 2014, up from 27.7 per cent in the March, SpiceJet’s share rose from 18.6 per cent in the Jan-March quarter to 19.6 per cent in July-September and GoAir’s share went from 8.5 per cent in March to 9.5 per cent in September 2014.
Air India and Jet Airways, meanwhile, have seen their share plunging from 19.8 and 19.9 per cent respectively in March 2014 to 16.9 and 16.2 per cent in September. This could be why these airlines are said to have approached the Ministry of Civil Aviation last week, raising concerns over the budget carriers’ frequent fare bonanza. Not that they haven’t benefitted from the sales. “Jet Airway’s recent promotions have been extremely successful, resulting in good forward bookings and incremental passenger and revenue growth,” says a Jet Airways spokesperson.
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