With traffic falling from 11.4 million passengers in 1996-97 to about 10.5 million in 1998-99, however, Sahara was squeezed hard between the other two, despite it offering the best service in the air, particularly in the economy class. Clearly, they needed to fight back. In mid-March last, they stunned the industry with across-the-board fare cuts of 10 to 20 per cent. Thus, the Mumbai-Bangalore fare fell to Rs 3,333 (I-A Fare Rs 4,045), Mumbai Delhi Rs 4,111 (Rs 5,110, Delhi-Chennai Rs 6,666 (Rs 7,720); Delhi-Goa Rs 5,999 (Rs 7,010) and the like.

At first, the competitors did not react. To follow suit would have been suicidal. As Sahara started winning over thepassengers, however, they had to respond. I-A very cleverly launched their Delhi-Mumbai shuttle service, but without any fare cuts. That helped I-A to stem the tide. Having launched 10 services a day on that route, I-A not only exceeded Jet's frequency, but also blocked further frequency increases by the competitors Jet, in turn, offered hotel discounts. Wisely, neither airline offered fare discounts across-the-board to match Sahara.

It was soon clear that Sahara was being hurt by the indiscriminate, system-wide discounts, which they withdrew earlier than planned, on July 1, last.

About that time, I-A moved to hit back at Sahar with a Delhi-Mumbai discounted fare of only Rs 3,800 - which Jet matched and Sahara then undercut to Rs 3,555. These fares, meant to be temporary, were extended thereafter, as no airline wanted to be the first to call off the discounts. I-A may have got the others off the hook by finally deciding to terminate the Delhi-Mumbai discount from September 15. It is hoped that by then,the lean season might be over.

The situation is still very fluid, with discounted all-inclusive hotels stays in Goa, hotel discounts in Delhi and Mumbai, and several other offers, too numerous to be covered here.

Who are the gainers and losers in independent India's first-ever fare wars? Obviously, passengers are the biggest gainers, at least for the present, with unprecedented low fares and freebies.

Among the losers, however, Sahara may well top the list. When airlines undercut fares, they rarely do so system-wide, which would cause their yields to collapse. They only cut fares on routes where they lag, while retaining the high-yield fares elsewhere. Savage fare cuts all-round, in an industry noted for its paper-thin margins, does not make sense. They then made a second mistake of retaining the discounts for too long.

These low fares are ruinous for an airline already doing badly financially. Even earlier, Sahara could not have been profitable. With a fleet of just five aircraft, it just cannotenjoy any economies of scale - which I-A and to a lesser extent Jet, have already attained.

What Sahara needs to do, once traffic picks up, is to rapidly expand their fleet, build up their network, increase frequencies, offer more non-stop services and enhance their punctuality. That is what business travellers want. Good inflight service and executive lounges are comparatively less important to business travellers. By contract, Sahara have only five aircraft, nine destinations (over 50 for I-A), poor frequencies, and indifferent punctuality. Also, airlines that compete on cost rather than on quality, cannot win. Lastly, short-term fare cuts cannot lead to long-term traffic gains.

For that matter, I-A has also been affected by the fare wars. Their Delhi-Mumbai fare of Rs 3,800, while higher than Sahara's Rs 3,555, is still 26 per cent below the original Rs 5,110 fare. Suppose, for the sake of a comparison, I-A carries 75 passengers on a Delhi-Mumbai A320 flight. Their total revenue at the Rs 5,110 fare isRs 383,250 for that flight. To earn the same revenue at the Rs 3,800 fare. They would have to carry over a 100 passengers - not counting the cost of carrying those additional 25 passengers I-A earns about 10 per cent of their revenue on that route. The hotel discounts are quite as unsustainable. The I-A holiday package at the five-star Majorda Beach Resort costs Rs 6,999 per head, including the Mumbai-Goa return air fare, three nights stay at the resort, airport transfers, a welcome drink, all meals, a boat cruise and numerous other goodies. (There is no mention of dual occupancy, but that seems likely.)

Of the total charge, the I-A two-way fare alone comes to Rs 4,820, leaving a balance of Rs 2,179. By contrast, the Majorda Beach Resort charges Rs 8,400 for a couple for much the same package - Rs 4,200 per head. Thus, there is a discount of Rs 2,021 per head on the separate costs of the air fare and the resort stay. Even assuming the resort offers I-A passengers this package at a very high 50 per centdiscount, that still means a difference of Rs 1,010 - 21 per cent of the return air fare - for I-A to bear.

Incidentally, Sahara offered only a two-night stay, with just breakfast and dinner, at the Cidade De Goa for the same Rs 6,999 package fare. Also their new summer special 1999 Mumbai-Bangalore fare of Rs 3,545 (up to September 30 only) is actually higher than their earlier discounted fare of Rs 3,333. Has Sahara finally learnt its lesson?

Quite possibly, the traffic downturn and the fare wars may together push I-A into the red again this year. Results so far - a peak-period first quarter profit of just Rs 5.5 million and a second-quarter loss (even if a reduced one) are ominous. Jet Airways cannot escape the impact of these factors either.

Once the economic upturn begins, will the airlines revert to their earlier, high-yield fares? They will be sorely tempted to do so. If Sahara has learnt its lesson, it will not repeat the experiment. If it has not, the whole process can be repeated at the nextdownturn. Lastly, an ailing emaciated airline industry may not be in the passengers' long-term interest.