India's Airlines Raises Fares

May 15--MUMBAI -- After offering rock-bottom air fares to woo passengers, domestic airlines led by India's second largest low fare airline SpiceJet Ltd have now raised fares for tickets booked up to 14 days before the date of travel by 10%.

According to travel agents, while SpiceJet was the first to adopt the strategy, other airlines including Jet Airways (India) Ltd, IndiGo, GoAir and state-run Air India have now jumped onto the bandwagon.

Since January, local airlines have been offering discounts of 35%-50%. SpiceJet, which has led most price promotions this year, even launched a sale, allowing passengers to buy tickets for prices ranging between Rs.1 and Rs.1,499.

The move is part of airlines' strategy to target leisure travellers by offering discounts, but compensating by raising fares for less price-sensitive business travellers.

"There has been a very substantial increase, to the extent of almost 20%, in near-term travel fares in May over April," said Sharat Dhall, president of Yatra Online Pvt. Ltd. "This is a combination of the normal increases one sees every year in the peak summer travel season, as well as revenue optimization by the carriers on last minute travel. Last minute travellers tend to be rather price inelastic as they are either business travellers or vacationers who haven't made their travel plans in advance and are left with limited choice," Dhall said.

A senior SpiceJet executive, who spoke on condition of anonymity, said fares for near-term travel are unsustainably low. He added that for a two hour Mumbai-Delhi flight the walk-up, fully refundable fare would be around $170 one-way. In the US or Europe, a similar two hour flight, say, for example between New York and Chicago, booked at the last minute would cost $500-800 one way.

"In an industry where, even in India, 70-80% of our costs are in US dollars, the current last minute pricing is simply not sustainable and is one of the root causes for the financial turmoil the industry finds itself in," this person claimed.

SpiceJet made the move to higher fares for near-term travel on all sectors and the executive said its bookings are unaffected.

IndiGo, GoAir and Jet Airways did not respond to Mint's queries.

According to a report by consulting firm Capa, Air India, Jet Airways and SpiceJet are expected to post combined losses in excess of $1.2 billion for 2013-14.

The debt on the books of Indian airlines was $12.6 billion as on 31 December 2013; Air India, Jet Airways and the grounded Kingfisher Airlines Ltd accounted for 94% of this. Yatra's Dhall said the discount sales that he has seen this year from the airlines have been carefully targeted at leisure travellers.

"Thus, while spot fares have been left untouched ensuring no price wars between the carriers, these short duration sales have definitely stimulated the leisure traveller to shift from other modes of travel, or even make bookings on an impulse, thus growing the overall pie. We have also seen a substantial increase in bookings on less frequented routes, where these sales have reduced fares and induced a shift to air travel in preference to other modes."

Copyright 2014 - Mint, New Delhi

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