The Hindu Business Line : Staying competitive

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Chennai Jan. 26 To offset losses because of cheap fares or flying where no one has flown before, low-cost carriers hike fares when they feel they can get away with it. As Dr Anurag Jain, Air Deccan's Head for Pricing and Revenue, puts it when and whether prices are hiked, and by how much, depends on expected changes in the volume of traffic.

To remain competitive, Air Deccan not only keeps an eye on fare differentials, but also tailors suitable schedules for commuters keen to avoid the cost and inconvenience of overnight stays at hotels. After Air Deccan's 125 per cent slack season hike in the already high Mumbai-Bhavnagar fare, it is still Rs 1,500 cheaper than Jet's Rs 5,500.

Low cost

It has also hiked fares on other high cost sectors such as Hyderabad-Visakhapatnam or Mumbai-Belgaum. It can afford to do so. Either, there is no choice or it is easily the most competitive way in terms of cost or convenience.

When other carriers hike fares, to cope with higher costs or (quixotically) to counter low slack-season capacity utilisation, Air Deccan can always hike prices in tandem, while being well behind the others. Another strategy is to zero in on pilgrims or tourists. Medical tourism has become a staple for Air Deccan's Kolkata-Chennai route.

Even relatively well-off passengers save money on travel to help pay for treatment at Chennai's Apollo Hospital or Sankara Netralaya. Jet and Indian cost too much for them. Spice, the only other low cost airline, has a 4.30 a.m. check in. Why has India's number one low cost carrier cut fares; in two cases by almost 25 per cent. Why did it feel the need to do so? How does it yet manage to make a living?

Competitive moves

For Bangalore-Coimbatore, after Air Deccan showed a cheap and quick bypass around the congested 230-km highway, there was a rush of other airlines, who along with Air Deccan now operate 29 flights a day; more than the 17, which fly Bangalore-Chennai.

Competition has forced a drop in per passenger kilometre rates on these routes. But they are still way above those on trunk routes, by more than 90 per cent in the case of Bangalore-Coimbatore.