Full service airlines keen on no-frill model to boost yield

Full services airlines are serious about adopting the low fare model to boost yields and revenues at a time when price has become the deciding factor even for corporate travellers, hint latest indications. Corporate or business travel constitutes over 40% of the domestic travel. According to the Directorate General of Civil Aviation (DGCA), 247.48 lakh passengers flew domestically in January-July 2009.

Low cost airlines like SpiceJet, Indigo and GoAir had a 12.5%, 14% and 5.7% market share, respectively in July. Their full service counterparts like Jet, Air India and Kingfisher had 18.9%, 16.2% and 23% share, respectively despite having a fleet size almost double to that of low cost carriers.

The country?s largest private carrier Jet Airways? current occupancy is 69% and it aims to stretch it to over 90% with the introduction of a no frills services called JetKonnect which commenced in May. The carrier, which has 265 flights daily, now runs 127 flights on JetKonnect, with a 15% lower fare as compared to Jet, its parent company.

The revenues generated by this service will reap results in the ensuing financial quarters of this fiscal. The fares on JetKonnect is 15% lower than that of full service carrier Jet Airways. JetKonnect offers nearly 12,000 seats daily. For instance, a flight to Mumbai-Delhi sector would be around Rs 4,500-5,000 on JetKonnect depending on the availability of seats.

Explaining the rationale behind introducing low cost travel on Jet?s network Naresh Goyal, chairman, Jet Airways in the 17th annual general meeting of the airline had said, ??Demand for premium class travel is declining and the air travel market has become price sensitive. We have introduced low cost travel on routes where there is sluggish demand for premium travel.??

To get in the low cost fray, flag carrier AI will introduce Air India Express initially with 27 flights on its network soon. Earlier, the airline has plans to introduce low fare service in mid-September but now the plan has been deferred for sometime.

AI expects revenues of Rs 180-200 crore from the low cost service. Traditionally, low cost airlines like SpiceJet, Indigo and GoAir will have to shed their load factors due to the increased competition in their space, say experts.

Industry experts say with low cost travel dominating the skies during the upcoming festival and holiday season, airlines will indulge in fare war with aggressive pricing. ??Jet has witnessed a significant decline in its traditional business travellers who at present prefer economic fares.?? He further added that even Kingfisher Red, the no-frills service offered by Kingfisher is also formulating a predatory pricing policy which may not even cover an actually cost of a ticket.

Says Raj Halve, principal consultant, Samara Capital ??Of the 5,000 passengers travelling on the Mumbai-Delhi sector daily, probably only 200 would want to book on full service carrier,?? the remaining want a decent price and have shifted their loyalty to low cost travel.