Low cost or full service? The price barely varies

Full service carriers (FSCs) Jet Airways and Kingfisher Airlines last month hiked fuel surcharges — by Rs 200 and Rs 300 on short- and long-haul routes, respectively — after the price of jet fuel, or ATF, increased.

Low-cost carriers (LCCs) such as SpiceJet, IndiGo, JetLite and GoAir have been looking to do something similar, but the narrowing gap between their fares and that of FSCs — especially Air India (domestic) — is holding them back.

As both class of carriers fight for passengers, the difference between their fares has fallen from around Rs 3,000-4,000 per ticket earlier, to about Rs 1,500-1,600 per ticket in the last few months. Between LCCs and Air India, the gap has reduced even further, to Rs 300-500 per ticket.

 In March, domestic airlines carried 5.51 lakh fewer passengers than they carried in the same month last year, a fall of about 15%.

“The fare differential (between LCCs and FSCs) is limited and currently does not give us much head room to increase fares. However, we are looking at any opportunity that comes our way,” Samyukt Sridharan, chief commercial officer of SpiceJet, told DNA.

Maintaining the price differential is crucial for LCCs.

In fact, LCCs are offering discounts on tickets booked 20-30 days in advance. SpiceJet and JetLite have launched special return fares for tickets booked 10 days in advance on major sectors.

On the websites of domestic carriers on Monday, a ticket for a Delhi-Bangalore flight on Wednesday, May 6, was selling between Rs 4,279 and Rs 6,170 on five LCCs — IndiGo, Go Air, SpiceJet, JetLite and Kingfisher Red. Air India was offering the ticket for Rs 5,865. On Jet and Kingfisher, tickets began from Rs 7,104 and 6,804, respectively.  

“There is no price differential in reality if you consider the frills offered by FSCs,” said an LCC executive, who spoke on condition of anonymity.

A source said Air India was playing spoiler here. “Indian Airlines (Air India’s domestic operation) is playing a market spoiler by offerings fares as low as a low cost airline.”

Despite offering frills of a full service airline, the fares are highly discounted and on some sectors, they work out to be lower than fares of LCCs, the source said.

This pricing strategy helped Air India (domestic) to increase its market share slightly to 17.1% in March from 16.7% in January, even as market shares of Jet and Kingfisher marginal declines to 17.8%, and 26.7% from  17.9% and 27.6%, respectively.

An Air India spokesperson said it was the airline’s strategy to position itself between the FSCs and LCCs. “Our load factors have been good after we announced the apex fares, which is getting a good response,” the spokesperson told DNA. 

Mark Martin, head of aviation vertical at research firm KPMG, said, “Indian Airlines has been very aggressive and has taken radical measures. But now, the other airlines are becoming very competitive and the market is moving towards service offerings rather than price points.”