Corporate Feb 20, 2013
New Delhi: This is a season of fire sales for aviation companies. Just a month after SpiceJet offered really cheap fares, Jet Airways has unleashed a fire sale for 2 million domestic seats with fares as low as Rs 2,250.
The sale is valid for purchase beginning today to February 24 for travel up to December 31 this year.
Within hours of Jet announcing such discounted fares, market leader IndiGo has also jumped into the fray and is matching Jet's fares, said airline industry executives though IndiGo did not confirm this.
Popular opinion is that SpiceJet and Go Air may also join the fare war and Air India too will do something pretty soon to bring its fares closer to the Jet Airways offering.
While it is good for fliers, what will such fire sales by almost all domestic airlines in quick succession do to their bottomlines?
Jet Airways did not disclose details of the offer but industry executives termed the fire sale "suicidal". An executive at a rival airline pointed out that the timing of this fire sale coincides with renewed uncertainty over an equity deal with Etihad Airways of Abu Dhabi, which has been in talks with Jet to buy up to 24 percent equity.
"I see a strategic shift in Jet's strategy, with reference to the proposed deal. It seems Jet will now concentrate more on domestic operations. It has withdrawn some major long haul flights already but their impact on overall breakup between international and domestic business will be known only in the fourth quarter (current quarter). If the international:domestic ratio earlier was 60:40, it is now moving rapidly towards 50:50," this executive said.
He pointed out that Jet has withdrawn flights to Johannesburg, New York (JFK) and Milan (Italy) and that the JFK flight alone could account for as much a 5% of the airline's international operations.
Meanwhile, it is likely that aviation regulator DGCA will once again make his presence felt and politely ask other airlines (not Jet perhaps since the sale has already been advertised) to desist from offering sales of their own. On January 11 this year, SpiceJet had announced one million seats at Rs 2,013 for travel between February and April. At that time too, the DGCA had made his displeasure known to all other carriers which wanted to offer such low fares to match SpiceJet, stopping them in their tracks.
Fare sales are coming just when the Civil Aviation Minister has criticized airlines for haphazard growth without having traffic forecasts in place and has asked his ministry to do a traffic forecast study. While the study is being commissioned, Ajit Singh has already delayed capacity induction (meaning import of new aircraft) plans of airlines like IndiGo which want to rapidly scale up fleet size.
But market dynamics are not restricted to fleet augmentation by competitors - Jet has been on a losing spree in the domestic market for many months now. Data from DGCA shows that Jet (standalone, not combined with JetLite) was relegated to the number three position in domestic operations last year in September when Air India flew past it.
Earlier in 2012, March saw IndiGo pip Jet to become the country's largest airline by passengers carried. All through 2012 (except May), Jet (standalone) market share has been below the 20% mark and January 2013 may become the first month when its market share breeches 20% after May 2012. It is obvious that Jet would like to take its market share further in 2013, which is perhaps why it has become so aggressive on fares.
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