Low-cost domestic carriers raise airfares on busy routes

Crippled by financial setbacks and a dip in revenues, domestic air carriers have more than

doubled the fares on select metro routes ahead of a long festive season, as compared to the

fares four months ago. While a Delhi-Mumbai one-way ticket priced at the lowest fare cost

around Rs 2,300 in August this year, it has more than doubled to Rs 4,900 now, if booked 10

days in advance.

All the five low-cost carriers � Go Air, Indigo, SpiceJet, JetLite (erstwhile Air Sahara),

Kingfisher Red (erstwhile Air Deccan) � are charging upwards of Rs 4,500 one-way to

connect any two of the four major metro cities. Flyers will have to shell out around Rs

5,700 as one-way fare from Delhi to Bangalore, which used to cost around Rs 2,500 four

months ago. Similarly, the Delhi-Chennai one-way fare totals to around Rs 5,400 now as

compared to Rs 2,900 four months ago.

Aviation experts say that the recent hike could be explained by multiple factors which have

affected the airline industry. "Airlines have posted significant losses recently; now they

are trying to maximise the recoveries by hiking fares on metro routes that have high load

factors," said Kapil Arora, partner (advisory services), Ernst and Young Pvt Ltd. The

pricing that was adopted by domestic carriers till a few months ago, said Arora, was highly

irrational and was even below cost. "Airlines have started pricing rationally in select

sectors to bring closer the break-even point," he added. In the second quarter of 2009-10,

the balance sheet of all listed airlines was splattered with red. Vijay Mallya-promoted

Kingfisher Airlines posted a loss of Rs 419 crore, Jet Airways suffered a loss of Rs 409

crore and low-cost carrier SpiceJet incurred a loss of Rs 101 crore in Q2 2009-10.

Even though the domestic market remains highly price sensitive, aviation industry experts

rule out the possibility of the traffic taking a beating due to high fares in the coming

quarter. "With the macro economy picking up and GDP growth clocking 7.9 per cent, the demand

story is back. While the fares are on the higher side, they are not unreasonably high. The

traffic has risen steadily by 25-26 per cent in the last couple of months and is unlikely to

be impacted by the rise in fares," said SpiceJet COO Samyukta Sreedharan.

While fares have also been impacted with the airlines withdrawing most of the promotional

offers that were introduced a few months ago, aviation fuel price also had a role to play.

In the last six months, the aviation fuel prices have risen by around 12.5 per cent, forcing

all domestic carriers to raise the fuel surcharge by up to Rs 200.

"Airlines cannot absorb the rise in fuel prices any more and have been forced to pass on the

impact to the customer," said Arora.