Three loss making full service airlines are applying every trick in their books to grab even a wafer-thin margin in a tough market. Jet Airways, India?s largest carrier by passengers carried, its rival Kingfisher Airlines and government-owned Air India will offer discount holiday packages for Dubai Shopping Festival, a move, analysts say, aim at capturing market share at the expense of high profit margins.
Jet and Kingfisher are offering passengers anywhere between two and three nights? stay in Dubai?s 3-4 star hotels with return tickets at R23,000. Kingfisher, owned by Vijay Mallya, also offers its loyalty programme customers a free ticket for every ticket purchased.
Return tickets to Dubai cost anywhere between R18,000-20,000 on normal days. ?For hotel bookings, airport transfers and city tours, we pay anywhere between R10,000-15,000,? a travel agent associated with the Travel Agents Federation of India said on condition of anonymity as his agency has businesses with all the three airlines. ?Even if the airlines have a deal with the hotels in Dubai, they will still have to pay R8,000-10,000 for the full package.?
Airlines can break-even on their flights to Dubai with seat factors of around 50-55%. ?For domestic operations Boeing 737s and Airbus A320s break-even with 32% load factor if cost per seat is $175-$200 (R8,750-10,000 approx),? said an official with an American aircraft leasing firm. He is not authorised to speak to the media. ?International operations would be a little higher because of higher passenger servicing costs, so break-even point is around 50-55%,?
The break-even point is faster as they source cheaper fuel from West Asia. Jet Airways and Kingfisher Airlines deploy the Boeing 737 and Airbus A320 aircraft to fly Dubai.
?This is clearly a move for market share,? said Dhiraj Mathur, executive director, PricewaterhouseCoopers, a global accountant and consultant. ?Such offers are normal business practice, but the business environment is such that questions will be asked on the viability of such offers. However, if they are in the business of travel, airlines will have to come up with such offers during the holiday season. It?s a matter of when the going gets tough, the tough get going.?
Kingfisher Airlines? share slipped to 16.7% in October leaving its second place to low cost carrier IndiGo. The airline, which is under its lenders? financial restructuring package now, and reported a loss of R732 crore in the fiscal first half ended September 30, has to repay R7,000 crore from 2013. Kingfisher Airlines reported an operating loss in the fiscal second quarter. Jet, which posted a R713 crore loss in fiscal second quarter, has been reporting operational profit from international routes as compared to losses from the domestic market as they pay more for aviation turbine fuel.
?These offers are all basically for market share,? said Vishwas Udgirkar, senior director at consultancy firm Deloitte India. ?Margins for airlines are always very thin on such offers as they have to pay for hotels and tour packages. This is a common business practice and despite the business environment, airlines can?t stop such offers because then they will risk losing out on customers,? he added.
The debt-ridden national carrier has come out with two offers for the holiday season. Economy class passengers can upgrade to business class for an additional fee of R4,000.
?Business class upgrade is global practice,? said a consultant with a global audit and consultancy firm. ?It works well for Air India as they can fill the business class seats last minute. There is very little difference in servicing cost for domestic business class passenger and economy passenger so it?s a smart move from Air India,? he added.
