The civil aviation ministry has frowned upon the 25% across-the-board hike in air fares made by full service carriers, including Air India, Jet Airways and Kingfisher Airlines, over the last three days. The tariff hike has come just when the number of passengers on flights had recovered from the abysmally low levels of last year, after the government introduced several sops to airlines. The hikes ranging between Rs 800 and Rs 1,200, depending on the distance travelled by passengers, are expected to be replicated by low-cost carriers like SpiceJet, GoAir and Indigo. Though these airlines have not announced any fare hikes on Tuesday, they are expected to take up the lead.
But despite the discomfort in the civil aviation ministry, which is trying to get the finance ministry to agree to a lower tax on the aviation fuel, the airlines are unlikely to cut back rates. However, Air India was quick to clarify that its fares are still 10% lower than both Jet and Kingfisher and ?marginally higher than the low-cost transporters.? The move by the airlines, analysts say, is unwise as air travel has dipped as much as 20% due to the economic slowdown and January-March is a particularly a lean quarter for the sector. ?There has been a dip of 20% in the air travel over the last week?, said Noel Swain, vice-president-marketing, Cleartrip.com. He added that the decision to increase fares by 25% across-the-board was taken by the carriers over the weekend in a bid to improve their revenue per passenger.
Last month, the airlines had agreed on a fare cut after aviation fuel prices (ATF) came down with global crude prices, and the ministry promised to get them a tax break– of declared goods status for the fuel, which accounts for 40% of the flying cost of the planes.
A Delhi-Mumbai ticket, that cost Rs 1,500 under the discounted fare scheme, will now be priced at Rs 3,500 with the new fares coming into play.
The government had late last year extended the credit period for payment of ATF to oil companies from 60 to 90 days. ATF prices also dropped 57% from their August levels, leading carriers to introduce rock-bottom fares. Fuel prices comprise 40% of the operating cost of any airline. For the third quarter of FY09, carriers like Jet Airways and Kingfisher Airlines have reported losses of Rs 214 crore and Rs 626 crore, respectively, owing to poor load factors resulting from the economic slump and high air fares. Flag carrier Air India also reported losses of Rs 2,000 crore for the 2007-08 fiscal.
An industry expert said, ?The full service carriers could not sustain the low fare schemes that were on sale in January, the leanest month for air travel. The airlines, in a desperate move, slashed airfares to improve their yields per passenger. If the trend of low fares continues even in the medium term, the sector will have to brace itself for huge losses in the ensuing financial year.?
A press statement from Kingfisher stated, ?It is not a fare hike.? Instead it claimed the airline followed a dynamic pricing policy for each flight depending on demand. So fares on offer on each specific route are reviewed several times a day.
“We confirm that on flights that can sustain higher revenue, we have closed low fare buckets and are concentrating on selling higher fare buckets. Our focus in on earning revenue, and not seat factors.?
Agreeing on the same, an industry expert said, ?There is erosion in airlines bottomline and the sector needs to sustain the downturn.? An official from Jet Airways said, ?The special schemes we had offered to passengers in January were for a limited period.?
While a hike in fares will mean more revenues for airlines, travel agents are sceptical of the move. An official from yatra.com said, ?The base fares had come down to as low as Re 1 to zero in January. Now, with the demand picking up, carriers have decided to hike fares, which if not padded with a reduction in fuel surcharge in the coming days, may put them under pressure.?