The fierce competition among domestic carriers may have started to take a toll on the government’s regional connectivity scheme (RCS) with SpiceJet suspending operations on one of its southern routes owing to lack of commercial viability.
The fierce competition among domestic carriers may have started to take a toll on the government’s regional connectivity scheme (RCS) with SpiceJet suspending operations on one of its southern routes owing to lack of commercial viability. A senior government official told FE that SpiceJet has stopped daily operations between Chennai and Hubli which started from May 2018.
According to the Airports Authority of India (AAI) data, SpiceJet operated a 78-seater aircraft on the route, recording an average 65% passenger load factor (PLF) till November 11, 2018.
“The reason (for closure of route) was that it was not commercially viable to ply on that route,” the official said. The closure came a few months after market leader IndiGo launched services with a larger aircraft. IndiGo has been flying an Airbus A320 since July, having a capacity of 180 seats. It flew with just 27% occupancy on its flights till mid-November. The current spot fares on the route are hovering around Rs 2,700 which are below the prescribed UDAN fare.
A SpiceJet spokesperson said the decision has been taken as per the UDAN conditions “SpiceJet has taken all decisions vis-à-vis UDAN flights as per the rules laid down by the ministry of civil aviation. At every stage the government has been kept informed about these decisions,” the spokesperson said.
Under RCS, the airlines are protected by an exclusivity clause that allows only one airline to fly on one route in the first three years. However, for Chennai-Hubli sector, both SpiceJet and IndiGo had bid to acquire flying rights under round two of the UDAN auctions.
“Under the UDAN conditions, both the airlines get flying rights to fly if they agree to match each others’ bids,” the official said.
Both airlines did not seek any viability gap funding to operate on this route. A total of 50% of the seats on UDAN flights are subsidised by the government, subject to a maximum of 40 seats per flight. A stiff competition between airlines has kept the domestic fares low. Major airlines reported losses of around `390-1,297 crore during the September quarter owing to high oil prices and depreciation in the value of rupee apart from the low-fare scenario.
IndiGo, which held a 43% market share during November, has been driving the capacity addition in the domestic market in its bid to gain market share. According to DGCA data, the low-cost carrier added domestic capacity, measured in available seat km (ASK), at 25% year-on-year to 43.73 billion during FY19. In comparison, SpiceJet and Jet Airways grew ASKs at 10% and 6% year-on-year.