The impending entry of Air Asia into India is creating turmoil in the domestic aviation industry with price wars set to bleed many Indian airlines.
Low-cost carrier SpiceJet on Monday announced a discount of up to 75% on base fare for customers who book within the next three days. The travel period has to be between April 1 and June 30. For example, a Delhi-Goa ticket that costs Rs11,148 in the last minute is now being offered at Rs3,737 under SpiceJet's 'Super Summer Sale' scheme.
SpiceJet, which announced this offer on Monday morning was quickly followed by rival and biggest low-cost carrier IndiGo with similar discounts. Industry experts expect other domestic carriers to follow suit.
The is the third time that SpiceJet has announced a discount on airfares on advance purchases this year. Experts feel the Spice Jet strategy is working in its favour and helping it prepare for the upcoming competition, especially from Air Asia.
The Malaysia-based low-cost carrier, Air Asia, is all set to enter the Indian market despite strong opposition from some domestic carriers for granting air operator's permit.
"We haven't seen much action in the industry (in the past 18 months) ever since Kingfisher Airlines withdrew its operations. Now with competition coming in, the airlines are getting innovative and aggressive," Sharat Dhall, president of Yatra.com, an online travel portal, said.
According to Center for Asia Pacific Aviation (CAPA) estimates, three carriers — Air India, Jet Airways and SpiceJet — are expected to post combined losses in excess of $1.2 billion by the end of current financial year (FY14).
Air Asia, known for its low-cost model, could give a strong competition to domestic carriers that are already struggling due to high operational costs.
With continuous introduction of discounted fares, the number of advance bookings has increased, according to travel agencies. The idea is to fill up seats that would otherwise go empty. "Air Asia globally has used this strategy successfully," Dhall said.
Apart from Air Asia and Tata-Singapore Airline, two or three start-ups are expected to enter the Indian market in FY15. That would further impact the profitability of existing carriers.
"These advance purchase offers are a win-win for customers, for airlines, and for the travel industry and the economy overall as it leads to significant demand stimulation. Customers get to enjoy deeply discounted fares and airlines get to reduce wastage of seats," Sanjiv Kapoor, chief operating officer, SpiceJet, said.
"SpiceJet's special fares do not compare as favourably as their earlier offer. Having said that, we are seeing interesting uptake of 20% on sectors like Mumbai-Delhi and Mumbai-Bangalore. Such offers will certainly have a positive impact, especially at the start of the upcoming holiday booking season," Indiver Rastogi, COO and head (corporate travel), Thomas Cook (India), said.
The April-July period is generally the peak season for air travel due to summer vacations. "These flash sales are becoming a regular feature in the first few months of the year. Since last year, we have observed that whenever an airline has dropped fares or offered discounts on advance booking, other carriers have followed suit," Vikram Malhi, GM, South and Southeast Asia, Expedia, said.
Despite having higher load factors during the peak season in Q3, Jet Airways posted a loss of Rs267.89 crore during Q3, FY2014, from a profit of Rs85 crore during the same quarter of the previous year while SpiceJet posted a loss of Rs172.80 crore as against a profit of Rs102 crore in the corresponding quarter in Q3, FY 2013.
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