Competition in Indian skies is set to take off with AirAsia readying to enter the market in a couple of months with low fares and targeting the relatively untapped tier II and III city market. However, given the lead time they had — nearly 17 months from the time the carrier announced its India plan to getting the flying permit — incumbents SpiceJet, IndiGo and Jet Airways have been spreading their wings to markets where they foresee competition coming, offering discount sales of tickets to lock in passengers in advance. While fliers may rejoice, analysts worry that disruptive pricing may further affect the precarious balance sheet of the carriers, most of which are loss-making.
To counter the new entrant, market leader IndiGo (31% share in March 2014), for instance, is expanding its fleet by adding one A320 every month, while shifting its focus towards South India by doubling weekly flights to Visakhapatnam and expanding flights to Thiruvananthapuram and Kochi, and adding new destinations in smaller towns like Varanasi and Ranchi. This should not come as a surprise, since AirAsia had announced well in advance that its base will be Chennai and it would focus on smaller cities.
Meanwhile, another low-fare carrier, SpiceJet, has focused on a series of super-sale offers to guarantee usage of inventories (seats), along with a sharp focus on revenue management. In fact, its offer of selling a few tickets at R1 also attracted the wrath of the regulator Directorate General of Civil Aviation that called it “predatory pricing” and asked the airline to immediately strike it down. To retain customers and focus on reliability, SpiceJet has also begun several initiatives like announcing an ‘on-time guarantee’ earlier this week under which it will compensate customers for flight delays.
Interestingly, AirAsia does all of the above in other markets and again, it is not surprising that SpiceJet has taken a leaf out of the AirAsia’s book since Kaneswaran Avili, who joined SpiceJet as its new chief commercial officer, is from the founding team of AirAsia’s first operations in Malaysia in 2001.
“We are focused on both revenue management and cost management. In India, it is known as fare wars but in reality it is standard practice — it makes no sense to fly empty seats. As long you structure the offers in a manner that doesn’t dilute your overall yield, these are revenue-contribution-positive. On an average, airlines in India are flying 20-30%