There’s camaraderie in the air

MUMBAI: As stiff competition and mounting operating costs take a toll on the profitability of airlines, the aviation industry is attempting to come to a consensus on exercising prudence in cost management and keeping irrational pricing under check.

After taking a collective decision on passing on the impact of rising jet fuel costs to the consumers in the form of fuel surcharge, airlines present at the Centre for Asia Pacific Aviation (CAPA) symposium on Friday said they would not pass on the cut in the aviation turbine fuel (ATF) prices (which may be implemented from October) by reducing the fuel cess.

Kapil Kaul, CEO of CAPA Indian subcontinent and Middle-East, said that oil marketing companies were looking at slashing ATF prices by around 7% in the coming month. However, carriers seem to be in no mood to respond to it with a corresponding reduction in fares.

“Prudence would dictate that reduction in ATF prices does not result in fare cuts. The industry had absorbed high fuel costs for a very long time before it decided to pass it on to consumers. So now, when fuel prices are going downhill, we will not rush to make a downward revision. Also, we think the current 50% traffic growth would support this move,” said SpiceJet Ltd managing director Ajay Singh.

Airlines are also trying to put a price regime in place, which does not allow any of them to push up fares a few days before the closing date of booking.

“We have learned our lessons from fuel surcharge. The same thing can be applied in rationalisation of fares. How can the last day fare be half of the prevailing market price on that day? We are thinking of coming out with a framework on the pricing regime, under which consumers should be able to choose an airline on the basis of its performance,” said Singh.

CAPA chief executive officer Andrew Miller blamed irrational pricing and lack of a price leader. “No one carrier dominates and maintains pricing discipline. This has led to the ridiculous and internationally unprecedented situation where fares before departure are cheaper than when purchased 21 days out,” stated Miller.

Kaul feel this kind of consensus will not last for long as, sooner or later, market forces would take over.

Even Air Deccan COO Warwick Brady believes the camaraderie would not be sustainable. “We are like street dogs. At present, the market is very irrational and there is a risk of few deaths. If the oil prices are higher than $60 per barrel then by February-March, we can expect to see a bloodbath,” said Brady.

Kaul said a sensible fare regime was very important for airlines to return back to financial health. As per CAPA, the industry’s estimated losses for the current fiscal is expected to be in the region of Rs 340 crore, and its average yield is hovering at around Rs 2,600 per ticket.