Competition in the air

THE INITIAL EUPHORIA over the dramatic fall in the cost of domestic air travel has given way to a more realistic appraisal of what is on offer. The aggressive promotional schemes offered since the beginning of July have certainly been good news for certain categories of passengers who probably value affordability above anything else. For them, the heavily discounted fare structure — in specific sectors such as Delhi-Chennai the reduction has been by as much as 60 per cent — enables them to afford air travel for the first time. In fact, the magnitude of the fare cut has been such that in specific instances air travel compares very favourably to the fares charged by the Railways for upper class travel. With each passing day, the country's principal domestic airlines, IA and Jet, which together have a 90 per cent share of the traffic and the much smaller Sahara have been extending the incentive scheme.

Has the age of cheap air travel arrived in India? The realisation that just 10 per cent of the economy class seats are offered on a discounted basis in each flight by the two principal airlines should be a dampener. Indian Airlines, for instance, offers just 2,000 of its 20,000 seats on a discounted basis every day. Also, the attractive fare structure comes with a few onerous riders — an advance booking requirement of at least 21 days and a 50 per cent cancellation charge. Travel agents point out that those conditions, although common to international travel, are totally alien to the domestic air traveller. Consequently, less than half of the discounted tickets have been utilised during the first weeks of the new fare scenario. Another key question: will the promotion go beyond October when the current lean season ends and the normally busy season starts? Obviously it calls for a change in mindset to switch to air travel in preference to, say, rail transport in India. Economy and affordability will certainly be key determinants but they must be made available over a fairly long period. To put it differently, cheaper air travel or at least a differential fare structure ought to be institutionalised in the country.

Much of course depends on the economics of the domestic airlines industry. In place of the state-owned monopoly, the industry is now more akin to a duopoly. The advent of Jet Airways as a potent force introduced competition for the first time. It is entirely likely that domestic travellers would probably not have reaped so many benefits — including the latest round of price cuts — but for competition. However, generalities aside, competition especially of an unbridled variety might do more harm than good to all the stakeholders. Specifically, the latest round of aggressive pricing is based on the premise that it is better to get at least something for a seat that might otherwise go vacant. It is true that the airline business is "perishable" in one sense, but it is important also to price the extra seat on sound accounting principles. For the domestic airlines, the current lean season's woes have been compounded by a series of extremely bad news that has affected the travel business in India and abroad — the September 11 terrorist strike in the U.S., the crisis over Kashmir, the Gujarat carnage, the travel advisories issued by many Governments discouraging travel to India. The airlines hope to woo traffic from hitherto untapped areas through their latest promotions. How well they succeed will depend as much on the new custom they entice through competitive pricing as on retaining the loyalty of their existing full fare paying clientele. It will be extremely shortsighted and bad economics not to give extra value to the latter.

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