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Directorate General of Civil Aviation grounds hot air Rs1 offer from SpiceJet

Wednesday, 2 April 2014 - 6:00am IST | Place: Mumbai | Agency: dna

  • SpiceJet

Within hours of low-cost carrier SpiceJet announcing its new discount scheme on Tuesday, aviation regulator, the Directorate General of Civil Aviation (DGCA), asked the airline to stop offering it, terming it "predatory" and a "malpractice". SpiceJet's limited-seat offer of base fares starting at Re1 for travel between July 1, 2014, and March 28, 2015, resulted in customers visiting the airline's website in droves, making it temporarily inactive because of the heavy traffic.

The SpiceJet move, just ahead of the proposed debut of AirAsia in India, is seen as a knee-jerk reaction by some industry players. It has also raised serious concerns over AirAsia's proposed low-cost pricing model. Globally, airlines such as AirAsia and Tiger Air are known to offer aggressive fares, including for their flights originating in India, where the base fare was nil.

A top DGCA official told dna that the scheme announced by SpiceJet was against the Aircraft Rule 135. "The tariff offered by SpiceJet would have led to distortion of the market. However, there will not be any change in the bookings already made by customers," the official said. A SpiceJet spokesperson refused to divulge the number of tickets booked under the special offer.

This is the fourth time in 2014 that SpiceJet has come up with discounted air fares, which prompted other domestic carriers to follow suit. According to industry officials, other domestic carriers raised concerns with the DGCA about SpiceJet's latest offer.

In a strong response to the DGCA's move, SpiceJet said in a statement: "We do not believe that our pricing was predatory in nature since it is with the intent to stimulate demand, and is not intended to reduce or eliminate competition. With a market share of 20 per cent, we are not in a position to be predatory." The airline added: "As a low-cost airline in a market where demand is currently soft and costs are structurally high, amongst the highest in the world, we are trying our best to be innovative and adopting best practices from global LCCs in order to attract more customers and improve our revenue performance."

An aviation expert said there are seats which typically go unsold. "At least 30 per cent seats in a month go unoccupied. It would have been predatory if the airline was offering tickets for peak hours and on peak days. The DGCA should have checked all the details before taking a decision," the expert said on condition of anonymity.

In India, the Re1 air fare trend was first introduced by Capt GR Gopinath-promoted Air Deccan, which heralded an aviation revolution in the country. The cheap air fares made travelling by plane accessible to the middle-class, which had till then shied away from the mode of travel because of the exorbitant cost of tickets.

"This kind of low-fare market stimulation and inventory management is essential for the LCC business model, and is a key part of the strategy for low-cost airlines such as AirAsia, Ryanair, Southwest, EasyJet, etc, globally, and benefits the wider travel industry and economy at large due to the stimulation and economic multiplier effect," said SpiceJet.

With AirAsia about to launch operations in India, other airlines are gearing up for the competition. Tony Fernandes, chief executive of AirAsia, recently expressed his disappointment at Indian airlines's attempts to block the entry of AirAsia in India. The Federation of Indian Airlines, a lobby group for domestic airlines, recently wrote a letter to the prime minister, asking him to block the permission to give the air operator's grant to AirAsia India.

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