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Corporate Jan 12, 2013

Flashback to 2005? Flight tickets for Re 1

By Firstbiz Editors

In a throw back to happy Air Deccan days of 2005-06, low-cost carrier SpiceJet has slashed base airfares to an unbelievable Re 1.

The offer is open only for a limited period of three days and for travel from February 1 to April 30, according to a Business Standard report.

The aviation companies are witnessing a steady decline in passenger traffic. AFP

The all-inclusive fare will come to around Rs 2,013 and only one million passengers will the benefit.

Everybody-probably including those who earlier did not plan to travel during Feb-April-is making a beeline to try their luck.

But the company has restricted the access to the website, according to the BS report. CEO Niel Mills has been quoted as saying that the company has restricted the number of people who can log on to the site simultaneously.

According to the report, the company sold 200,000 tickets on Friday compared with a daily average of about 45,000.

IndiGo also has slashed fares quietly. The report, though, has no confirmation on this from the company.

The move is definitely kicking off a price war in a lean season. The undercutting was started by Air India's Jaldi Jaldi scheme.

The aviation companies are witnessing a steady decline in passenger traffic.

According to an earlier report in Mint, a sharp increase in airfares pulled down the domestic traffic by 0.87 percent on year in May, 3.84 percent in June, 3.7 percent in August, 12.4 percent in September, 15.7 percent in October and 7.28 percent in November.

The decline in passengers has turned out to be a bigger villain than the jet fuel cost for the industry, the report said.

According to the BS report, SpiceJet's load factor was 75 percent last year, compared with about 80 percent of IndiGo. The rock bottom fares will help SpiceJet increase this.

The scramble for market share is maddening, to the extent that SpiceJet is using in 2013 a scheme that was launched by a failed airline in 2005.

How viable is this? Has the Indian aviation sector changed for the better over these years?

A comparison of the schemes of Air Deccan and SpiceJet may offer an answer.

According to this Businessline report quoting an Air Deccan customer in 2005, the total cost of his Mumbai-Chennai ticket, with a base fare of Re 1, was Rs 222, including the safety tax.

In comparison, the total cost of a Re 1 SpiceJet ticket (ex-Delhi) now on offer is Rs 2,013.

As per the break-up given in the BS story, for a Re 1 SpiceJet ticket (ex-Delhi), the additional charges are a passenger fee of Rs 146, fuel surcharge of Rs 1,175, government taxes of Rs 58 and airport fee of Rs 633.

The difference between Rs 222 and Rs 2,013 is also the story of Indian aviation sector. It says how the sector has changed for the worse.

Wrong government policies and unhealthy competition have destroyed the sector.

SpiceJet and Jet Airways had posted profits in the first quarter of the current fiscal year, but swung back into the red in the second quarter. Another player, which never made profit since inception, has been grounded.

The only good thing that happened for the players is the change in the government's policy on foreign direct investment in the sector, allowing foreign airlines to pick up 49 percent stake in their Indian peers.

But, as is evident by now, foreign airlines are not rushing to invest here yet, as they are wary of the government's policies. They are convinced about the potential of the sector, though.

So, if SpiceJet's move is bringing back the happy Air Deccan days of yore for air travellers, that will just be for a very brief period.

Announcing the launch of Air Deccan's Re 1 tickets in 2005, Chairman Captian G R Gopinath said his aim was to "empower every Indian to fly".

What happened later to his dream is well chronicled.

Hope the government and other players learn from that.

by Firstbiz Editors

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