SpiceJet offers 75% discount on summer fares triggering price war, IndiGo follows

Written by fe Bureau | Mumbai | Updated: Feb 26 2014, 16:11pm hrs
SpiceJetThe latest move by SpiceJet has forced other no frills or low cost carriers like IndiGo and GoAir to come up with similar offers.
Low cost carrier Spice Jet on Monday said that it is offering up to 75% off on base fare and fuel surcharge relative to last minute fares, for travel between April 1 and June 30, 2014, applicable for bookings made till February 26.

This is the third time in the year that Spice Jet has given discounts under its advance purchase offer, a move which like its predecessors has led to price war of sorts with other airlines (no-frills) following the Chennai-based airline in offering discounted summer fares.

Under this offer, customers can get up to 75% discount on base fare plus fuel surcharge relative to last minute bookings (i.e. bookings that are made within 7 days of travel). The discounts are extremely attractive: For example, a Delhi-Goa fare that otherwise sells for Rs 11,148 all-in for last minute purchase, can be purchased for as little as Rs 3,737 all-in under this offer, said a SpiceJet release.

Travel agents say that the latest move by SpiceJet has forced other no frills or low cost carriers like IndiGo and GoAir to come up with similar offers.

SpiceJet and Indigo are providing discounts on their summer fares to stimulate the market and leverage advance bookings for the upcoming holiday season. SpiceJet has launched a three day sale with discounts ranging from 35% to 75% on current fares across sectors between April 1 and June30, said Sharat Dhall, President of Yatra.com, a travel portal.

We are already seeing strong demand on the key leisure destinations like Goa, Kerala, etc. and bookings have more than doubled post the announcement. We expect other airlines to follow suit with similar discounts as these prices are sure to strike a chord with the leisure traveler, he added.

An IndiGo spokesperson said that the airline is also offering attractive discounts on bookings made till February 26, for travel between April 1 and June 30, 2014. However, the airline hasn't mentioned the percentage of discounts its shelling out for its customers.

Go Air, meanwhile, is expected to announce summer discount fares soon.

These flash sales are becoming a regular feature in the first few months of the year. Besides stimulating demand, these are also prompting Indians to plan their travel in advance, as these sales encourage travel planning in a particular time frame and at least a month in advance from the date of the promotions, said Vikram Malhi, GM, Southeast Asia, Expedia

Recently, a report by Center for Asia-Pacific Aviation (CAPA) said that Indian carriers lost $1.65 billion on revenue of $ 9.5 billion in FY13, while 40% of the annual loss was generated in fourth quarter (January-March 2013) period itself.

The fourth quarter is generally considered the weakest in the year, according to industry experts, when airlines often struggle to fill up its seats.

The Indian consumer is evolving and seeing the pattern since last year, they have begun expecting such discounts more often. Typically what we have observed so far since last year is that whenever an airline has dropped fares or offered discounts on advance booking, other carriers have matched their pricing to keep their market share, added Expedia's Malhi.

SpiceJet is estimated to need close to $200 million to remain operationally viable, while a turnaround may require $300 million or more for the airline, according to the above mentioned CAPA report.

Given the negative net worth of over Rs 800 crore and loan liability of over Rs 1700 crore, funding the operations, going forward, would remain a very challenging task for the company, a recent ICICI Direct report on SpiceJet added.

These advance purchase offers are a win-win for customers, for airlines, and for the travel industry and the economy overall, as it leads to significant demand stimulation, customers get to enjoy deeply discounted fares, airlines get to reduce wastage of seats that would otherwise fly empty, and others in the travel Eco-system get more business, said Sanjiv Kapoor, Chief Operating Officer, SpiceJet Ltd.

Spice Jet had earlier in January cut fares by more than half for three days, a move which was promptly followed by Air India and Jet Airways. The airline offered another round of discounts days later.

Full service airlines like Air India and Jet Airways meanwhile were not available for comments.

SpiceJet shares closed 0.74% up at Rs 13.70 on Tuesday on the BSE.