AirAsia's Likely April Entry Leaves Others Flustered - The New Indian Express

AirAsia's Likely April Entry Leaves Others Flustered

Published: 03rd March 2014 06:00 AM

Last Updated: 02nd March 2014 08:40 AM

Since the beginning of 2014, Indian airline operators are luring customers with attractive discounts. Each airline is eyeing the biggest share in what’s being considered one of the most promising civil aviation markets of the world, and looking to consolidate their position before the entry of low cost Malaysian carrier AirAsia, which is expected to take to Indian skies by April. 

The Malaysian carrier has also joined the ‘fare wars’ and announced five lakh free tickets on select routes and 1.8 million low fare promotional tickets in small windows of bookings. Most Indian carriers, including the state-owned Air India, have joined the ‘fare wars’ bandwagon, announcing discounts (at different times) so they don’t have to play ‘catch up’ games with competitors.

“When AirAsia comes, they will have their own offers. Before they come into the market, we want to consolidate our position and market share,” notes Sam Issac, chief financial officer at SpiceJet. The airline announced discounts of up to 75 per cent on its base fare a day before AirAsia’s announcement.

But with mounting losses, the ‘fare wars’ could take a different turn. As per aviation analyst firm Centre of Aviation (CAPA), the losses of Indian carriers (estimated) is between $173 million and  $262 million in the third quarter.

On the impact of these discounts on the balance sheet, Issac says there are other routes and flights which are ‘high yielding’ and will ultimately balance out the discounts. SpiceJet announced its third round of discounts in recent months. Quite recently, it has also introduced offers of up to 75 per cent off on base fares.

In an official statement, the company said this would attract first-time fliers and broaden the airline’s customer base. “On some routes and timings, we do not sell a high number of seats. Discounts are offered for lean periods,” the CFO says.

India’s most profitable carrier Indigo has objected to the granting of an operators’ permit to AirAsia, fearing loss of customer base. In fact, Indigo and the Federation of Indian Airlines (FIA) have challenged the approvals given to AirAsia on multiple occasions. The latter has partnered with Indian business houses Tata and Telstra Tradeplace in a 49:30:21 ratio with an initial investment of $50 million and three aircraft.

The rivals have contested that the relaxation in FDI (foreign direct investment) in aviation where foreign carriers can own up to 49 per cent in Indian carriers applies only to existing airlines and cannot be offered to new carriers. They have also stressed that FDI was introduced to help existing carriers that were suffering heavy and mounting losses.

Indigo and FIA have taken up the matter with relevant authorities and the aviation ministry. But the apex court refused an interim order to restrain authorities to give clearances to AirAsia.

Thus, the discounts continue and with promises of fresh announcements soon, according to Issac. But will the customer be prepared to pay normal fares once he gets used to the discounts? “There is no such thing as a loyal flier,” says Dhiraj Mathur, aviation analyst at research and advisory firm, PriceWaterhouseCoopers. He adds that only the ‘opportunistic’ flier will be affected by the low fares and the offers will not affect or alter preferences overall.

According to aviation regulatory body, the Directorate of Civil Aviation, the scheduled airlines ferried a total of 60,115,100 passengers in the domestic space in 2013. 

Online travel portal claims that the discounts offered are out to stimulate the market and leverage advance bookings in the upcoming holiday season. “We are already seeing strong demand on the key leisure destinations like Goa and Kerala and bookings have more than doubled post the announcement. We expect other airlines to follow suit with similar discounts as these prices are sure to strike a chord with the leisure traveller,” the portal said in a statement.

“We have put out these discounts for those who haven’t planned any specific travel and to attract the first-time fliers. We are sure that the discounts will compel people to plan holidays even if they hadn’t earlier,” adds a SpiceJet spokesperson.

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