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December 11 2019
Full-service carriers face crosswinds from budget airlines
24 September 2018

FSCs introduce ‘lite’ fares to attract passengers from low-cost carriers

In the domestic aviation market where passenger is the king with airlines out to woo him or her with the lowest ticket prices, full-service carriers (FSCs) that seek to stand out with the promise of higher level of services and global connectivity are increasingly under pressure to cut costs and offer fares on par with the budget airlines for travel within the country to remain relevant.

Recently, Jet Airways decided to dispense with complimentary meal on-board — the single-most distinguishing feature for a full service carrier in the country — for certain fare categories on domestic routes. In August, Vistara – the only full-service domestic carrier in the world — had done the same by introducing a basket of fare options where one can pay extra for additional services such as meal on-board, additional baggage allowance, seat selection as well as free rescheduling and cancellation.

‘Lite’ fares

By introducing “lite” fares, both airlines aim to attract those passengers who can swing from one airline to another for a fare difference as low as ₹200 to ₹300.

Last year, Air India had also decided to offer only vegetarian meals on-board for domestic flights. Industry insiders say that it may too respond with “lite” fares.

Competitive airfares offered by low-cost carriers (LCCs), which have new and modern planes, an aggressive fleet expansion plan, wider domestic network with higher frequencies and often better punctuality have ensured decline in domestic market share of full-service carriers to close to 30%. Aviation industry experts say that unlike low-cost carriers in other countries which offer bare-bone facilities to their passengers, better services by low-cost carriers in India mean there is very little difference between them and full-service carriers.

Marginal benefits

An analyst said, on the condition of anonymity, that with the introduction of “lite” fares this differentiation gets further eroded for Vistara and Jet Airways. While these airlines may be trying to woo passengers with lower fares and cutting down their own operational costs for these categories, there are concerns that benefits accrued may be marginal, if any.

The operational costs incurred by FSCs are almost 40% higher than LCCs and introduction of “lite” fares would not make much impact on this cost difference, the analyst added. Aviation consultancy and research firm CAPA has indicated recently that market share of FSCs such as Jet Airways and Air India is likely to drop below 10% in the next 12 months as LCCs continue to massively expand their fleet size.

Sample this — the three full-service carriers Air India, Jet Airways and Vistara — among them have a total fleet of 265 aircraft and 121 domestic routes.

Budget carriers IndiGo, SpiceJet, Go Air and Air Asia have a collective fleet size of 280 planes and 136 domestic destinations which are set to expand several fold with these airlines collectively adding three times the planes that full service carriers plan to add to their fleet in the coming years. With this, the market share of FSCs, currently at 30%, is set to further decline. CAPA, in its recent mid-year outlook for the current fiscal, indicated that Jet Airways had neglected domestic operations for the last few years, impacting its overall viability.

Air India and Jet Airways have closer to 50 % of revenues from domestic flight operations but remain uncompetitive as their costs are significantly higher while their earnings per passenger mile are low. With oil prices nearing $80 per barrel and rupee hovering at 72 versus the dollar, along with massive capacity induction by Indian carriers, the aviation industry faces profitability challenges. CAPA has forecast that the three leading LCCs IndiGo, SpiceJet and GoAir are better-placed than FSCs and could see break-even, modest profitability or even a full year loss while FSCs could lose up to $1.75 to $2 billion in FY2019.

 

 

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