Fresh plane orders may lead to ‘over capacity, price wars' among low-cost carriers

With Indian low-cost carriers (LCCs) placing orders for over 250 aircraft in the recent months, the induction of additional aircraft in the low-cost segment could lead to “substantial over capacity and a price war with declining yields”, the CEO of Kingfisher Airlines, Mr Sanjay Aggarwal, said in a press statement.

The airline had announced its decision to exit the low-cost segment recently. Operating costs of both LCCs and full-service carriers in terms of fuel, airport charges, engineering and maintenance and crew costs were similar, he pointed out. However, full-service carriers incur additional costs on global distribution, in-flight catering, ground amenities and the frequent flyer programme, which are “more than recovered through higher yields”, said Mr Aggarwal.

According to him, the airline's full-service product has generated higher yields and load factors in the last six months than the price-sensitive low-fare segment. While only 25 per cent of the incremental yield is spent on providing the extra services associated with a full-service carrier, the remaining contributes to the bottom line, explained Mr Aggarwal in the statement.

reconfiguration

Over the next four months, Kingfisher Airlines will reconfigure all its Airbus aircraft including its single-cabin aircraft into dual-cabin aircraft with a reduced business-class cabin and an increased number of full-service economy-class seats leading to a 10 per cent capacity increase. The space requirement for additional economy seats will be made available by reducing the number of business-class seats, the statement said.

“The reconfigured aircraft will have the seat equivalency of a low-fare carrier but an opportunity to generate much higher revenue as demonstrated by current yields,” said Mr Aggarwal, adding that there will be no reduction in the airline's fleet size or its network.

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