Promo fares strategy drives SpiceJet ahead of competitors

The beleaguered SpiceJet is finally seeing some green shoots because of the airline’s dynamic pricing and better revenue management during the past few months.

The first signs of the success of this strategy is reflected in its market share as well as load factor which have picked up dramatically during the last quarter.

According to analysts from brokerage firms, these increases are because of the promotional fares which were introduced recently by the airline run by billionaire Kalanidhi Maran, the Chennai-based owner of several media businesses.

As of June this year, SpiceJet’s market share was 19 per cent, next only to Indigo whose share stands at 31.6 per cent. But what is significant about the Chennai-based airline’s market share is that it is the only domestic airline in the country whose share has grown steadily while that of its competitors have either dropped or are flat.

In terms of load factor, SpiceJet’s growth has been remarkable. Its load factor in June, was as high as 81.4 per cent, a mere 0.1 per cent away from the leader, GoAir.

The story was quite different a year ago. In June, 2013, the load factor was 73.3 per cent, which clearly shows that the airline has performed well on the back of its promotional fares.

A SpiceJet spokesperson told BusinessLine that most of the increases in load factor as well as market share were achieved because of active revenue management and dynamic pricing on top of a completely new network that went into effect on March 30 this year. “All of our market stimulation efforts are designed to fly fewer empty seats by selling them at attractive prices to those who were willing to book early. (This) helped us increase loads, while yields were maintained through those booking close to date of travel,” the spokesperson said.

The airline, which will announce its quarterly results on August 14, also pointed out that the market share increase occurred at the same time it reduced capacity. The capacity was reduced after the airline took six Boeings out of its fleet and added a new one leading to a net reduction of five Boeings. “To increase share while reducing capacity is not easy, but that is exactly what we did.” Vasuki Prasad, an analyst with airline consultancy firm flyingengineer, said that SpiceJet could even see some profits because of its new strategy. “They are in the middle of a brand transformation and one of their main aims is to make as many people as possible to fly SpiceJet,” he pointed out.

He also felt that the airline’s maintenance costs could actually go up because some aircraft are very old and a few D-checks are being carried out on them and these checks are quite expensive.

Travel portal, Cleartrip’s President and Chief Executive Officer Samyukth Sridharan, who earlier worked with SpiceJet, said that the promotional fares have actually stimulated demand. “The discounts offered on fares have worked for the airline and at the same time they have seen to it that no discounts are offered at close in (nearer to the date of flying) fares,” Sridharan said.

However, an analyst who did not want to be named said that one of the issues which could bog down the airline because of the promo fares would be because of the fact that revenues will kick in this quarter while services would be rendered in the next quarter. But the airline spokesperson claimed that it wouldn’t be so because for accounting purposes, revenues are recognised only when the services are rendered.

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