Flying high

When SpiceJet came up with its Rs.2,013 offer on ten lakh tickets, it was an instant sell-out. Rival carriers are scrambling to respond, and the traveller is all smiles.

Air India planes are parked in a row, as a Spice Jet plane takes off at the Indira Gandhi International airport in New Delhi, India, Tuesday, May 8, 2012. Air India canceled four international flights Tuesday after about 150 pilots failed to turn up for work in a protest against unpaid salaries and work conditions. (AP Photo/ Mustafa Quraishi)

This is lean season and airlines are lowering fares. In a high airfare regime, demand for air travel is shrinking, causing concern among airlines.

So when SpiceJet last week made a dramatic offer, everyone stood up and took notice.

SpiceJet’s one million (10 lakh) seat cheap fare offer was something people made a dash for. In 72 hours, seven lakh seats were sold at Rs. 2,013 a ticket (all inclusive) across the network of the low-cost airline. Travel under the scheme is valid from February to April, a time when airlines fly with over 30 per cent empty seats.

The current travel trend is negative. November and December 2012, considered peak months, witnessed a growth regression of 7.28 per cent and 4 per cent respectively, compared with November and December 2011. Rising airfares had an impact on growth by 3.4 per cent in the January-December 2012 period, compared with the same period in the previous year. The January-April period is lean as families and travellers avoid travel.

In this backdrop, Spicejet’s offer was an instant success. All the tickets could have been sold out but for a slow functioning server. It is believed that SpiceJet was forced by the Directorate-General of Civil Aviation (DGCA) to stop the offer as it could hurt other airlines. SpiceJet did not comment.

Explaining the rationale, SpiceJet Chief Executive Officer Neil Mills told

The Hindu: “We offered 20 per cent of our 50 lakh seats, which could have gone empty in the lean season. We wanted to stimulate demand by attracting people who could not have travelled at all. We are very happy with the response.”

Big mobilisation

He said the airline mobilised Rs. 165 crore in three days, including Rs. 141 crore through the sale of seven lakh tickets at Rs. 2,013 each. The pricing is significant as the offer was made in 2013.

“We feel that it was a smart tactical move from SpiceJet to attract passengers in the lean period of February-April when families and tourists generally stay away from flying. It created a good buzz in bad times. This may also help to pull over some people who otherwise may have preferred a train journey,” said Amber Dubey, Partner and Head-Aviation at the global consultancy KPMG.

“The offer was not for the entire flight. This will help the carrier in capitalisation of funds. This, I think, is a good move before the busy season that will begin around May. ,” said Ankur Bhatia, Executive Director, Bird Group, a travel consulting firm.

What caught the market off-guard was SpiceJet’s decision to sell a large part of its inventory at 70 per cent below the market rate. Profitable Indigo, with much fire power, could have matched the offer but was prevented by the DGCA. So were other airlines ready to make similar offers which were dubbed “suicidal.” But airlines, having realised the writing on the wall, have begun lowering fares in different ways.

All airlines refused to make a deep discount offer like that of SpiceJet but are quietly lowering fares in advance purchase schemes and offering discounted fares on particular days and during lean time slots in some sectors.

Jet Airways has offered 30-day advance low fares starting from Rs. 2,320 to Rs. 3,200 in some sectors under a scheme called LoFares. Go Air has announced low fares at Rs. 2,320 under its 30-day advance purchase scheme. It is also offering Mumbai-Delhi tickets starting at Rs. 4,743.

Air India is also running multiple schemes in all sectors, and Indigo, which has maintained silence, has offered low introductory fares to Dubai from Mumbai and Thiruvananthapuram for new flights. Qatar Airways and Lufthansa have also announced offers.

“The October-December quarter saw traffic fall for the first time in many years. After long, some stability has come in airfares. At an overall level, there may be a slight cooling of fares in the January-March quarter, but not across-the-board deep discounts. Considering the high cost structure currently prevailing, there may be a short blitzkrieg of discounts by other airlines,” Mr. Dubey said.

Contented with the success of the first offer, Spicejet is not making a similar offer soon. It has received brickbats from rivals, though flyers love the move.