Logistics

Kingfisher's discounts on select routes could trigger price war

Anjana Chandramouly Bangalore | Updated on March 12, 2018

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After exiting the low-cost segment, private carrier Kingfisher Airlines has now unveiled new ‘low' fares on its full-service flights, which is expected to trigger off a price war among full-service carriers.

For instance, a Bangalore-Delhi economy seat on the airline can now be bought for Rs 5,191, normally sold at Rs 6,900.

Although these fares are available for a limited period, this could trigger a price war in the sector, where most full-service airlines are already making losses. “In the current scenario, most of these airlines are making losses and will continue to do so with such pricing strategies,” an aviation analyst told Business Line. It's important for airlines to sell the first 70 per cent of their seats, and earn money, he said.

Most airlines sell a bulk of their seats in advance to big agents and consolidators, especially during the travel season (usually the third quarter of the fiscal), and a miniscule 20 per cent is what they sell at a premium. Margins take a hit with these strategies.

However, with Kingfisher Airlines deciding to exit the low-cost segment and the Government of India asking national carrier Air India to increase their fares, “a structural change is starting to happen in the industry”, he said. And if airlines discontinue such (low) pricing strategies, “they could even break even or make profits in the fourth quarter of this fiscal and the first quarter of the next fiscal”, he added.

However, Mr Mohan Kumar, another analyst and a former chief financial officer of a low-cost carrier, pointed out that if costs are low, airlines can leverage it to attract customers. But when costs are not low, whatever strategy, including low fares, might not give the desired results. With air travel growing about 15 per cent every year, the industry could witness better times ahead, but keeping costs under control is essential, he added.

Yields, which were around Rs 2,600-2,800 for a low-cost airline, have now gone up to about Rs 4,000. “In the long run, it is these low-cost carriers that can sustain in the short-haul domestic routes. Full-service carriers will play a key role in a hub-and-spoke model offering international connectivity in India as in the West,” he added.

Published on October 16, 2011

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