Fare hike rejected by low cost airlines

Passengers drawn by low air fares have a reason to be happy. Leading low-cost carriers (LCCs) have rejected a proposal by full service airlines asking them not to sell tickets below their cost of operations, which could have translated into an increase in fares. Turning down the proposal at recent meetings with full service carriers, under the aegis of the newly formed Federation of Indian Airlines, last week, the LCCs stated categorically that they would continue to sell at least 20 to 30 per cent of their tickets below cost, in a bid to expand the market. Any hike in fares could make the LCCs lose market share to full service airlines. At present, budget carriers control 30 per cent of the market. The full service airlines had argued that there was a need to increase air fares as most carriers were bleeding. Airlines in India are expected to post a cumulative loss of close to Rs 2,200 crore in 2006-07, or Rs 6 crore every day. The LCCs said they would go in for a fare hike only if full service carriers raised their fares simultaneously, so that the price gap between the two did not go down.

“Increasing prices would mean a shrinking of market size. Airlines are in the process of developing the market. They have to price tickets attractively for making passengers migrate to air travel. Attractive pricing in the mobile telephony business has increased the market size,” an industry analyst pointed out. An LCC representative who took part in the discussions said, “Our strategy is simple: We want to expand and stimulate the market as we are looking at a long-term strategy where more and more train travellers take to air.” An executive of a leading LCC said, “By expanding the market, we will also reduce costs.” Leading aviation consultant Centre for Asia Pacific Aviation (CAPA) had predicted that LCCs’ market share in India would reach 70 per cent by 2010, making it one of the world’s leading LCC markets in terms of total market penetration. “Full service carriers, on an average, are losing a remarkable 1.5 percentage points of market share to LCCs every month. We do not expect this rate to slow in the short term, given the profile of current fleet orders,” said Kapil Kaul, CAPA CEO (Indian subcontinent & West Asia).

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