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In low airfare deals, airlines win if you cancel

Wednesday, 20 February 2013 - 4:00am IST | Place: Mumbai | Agency: dna

Jet sparks off another fare battle by offering tickets for as low as `2,250, others set to follow.

The airfare wars are back. And it is a good thing for fliers — as long as you don’t cancel the ticket. If you do, then it’s a good thing only for the airline.

In a surprise move on Tuesday, Jet Airways, India’s second-largest domestic airline, announced a nationwide sale of low-fare, one-way tickets during a six-day offer that opened on Tuesday.

As many as 20 lakh economy seats to 57 destinations, all to be used before December 31, 2013, are being offered at one-third discount.

In early January, budget carrier SpiceJet had put 1 million seats on sale for Rs2,103, which got a massive response, generating over Rs170 crore for the company in a matter of days.

Jet is offering fares as low as Rs2,250 for single journeys up to 750 km, while fares for destinations 750-1,000 km away are priced at Rs2,850 and so on, inclusive of all taxes.

For instance, the one-way fare from Mumbai to Ahmedabad, Mangalore, Hyderabad, Nagpur or Bhopal would be Rs2,250, and those to Bengaluru, Raipur, Coimbatore or Jaipur would come to around Rs2,850.

For distances beyond 1,400 km, fares would be Rs3,800.

Carriers like IndiGo, GoAir would be forced to make similar offers, said industry observers.

How do the airlines make money from such deals? Through cancellations, which, per industry sources, is around a third of that.

“It’s good for passengers, but how many people can plan travel that well in advance, including businesspersons?” asked Sudhakar Reddy, president, Air Passengers Association of India. “They’ll have to pay through their nose for cancellations.”

The Jet website said “fare rules with respect to cancellations, reissues apply as per the respective fare conditions.”

The fare conditions were not to be found on the website. DNA could not get through to the Jet reservations phone number despite repeated tries.

Sources said this could be over Rs1,000, if not more.

If Jet sells all the 20 lakh seats, it gets a minimum Rs450 crore in a matter of six days if all tickets sold were of Rs2,250.

And if a third of the bookings get cancelled, that’s a clean earning of Rs50-75 crore plus those seats can be resold at higher prices.

Simultaneously, Jet’s average realisation per ticket under the scheme proportionately rises from Rs 2,250.

On its part, Jet’s chief commercial officer Sudheer Raghvan called the scheme “a goodwill gesture”.

But the airline’s investors are worried because Jet and SpiceJet have been doing fairly well despite high fares and posted net profit in the third quarter ended December 31.

“I don’t think there is much to gain by coming up with such offers. It might just increase market share a bit. It is certainly not a healthy practice and will affect their profitability,” said Amrit Pandurangi, senior director of Deloitte.

“But competition is heating up. If everybody starts doing this, the industry will suffer,” he added.

@yugac & @abidi_shahkar

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