Airlines India, Indian Airlines

Domestic full service carriers (FSCs) are losing in excess of Rs 150 crore per month in their bid to cope up with the slack season on one hand and compete with low cost carriers (LCCs) offering cheap fares on the other.
FSCs which have a combined market share of 62.5% have resorted to heavy discounting on their tickets, according to industry estimates.

This, coupled with high aviation turbine fuel (ATF) prices and rising staff costs, has pushed these airlines deeper into the red.

With seats capacity growing at 45% per annum, a phase of intense price competition has begun. FSCs like Jet Airways, Indian Airlines and Air Sahara are discounting upto 60-70% on most of the domestic routes to match the new entrants’ ticket prices.

ATF prices, which are up 27% in the last 12 months, and increasing staff costs on the back of shortage of trained personnel, are already exerting pressure on airlines’ bottomlines, resulting in losses for all the carriers.

For the quarter ended June 30, 2006, Jet Airways had a net loss of Rs 45 crore while SpiceJet had posted a net loss of Rs 13.5 crore in the quarter ended May 31, 2006.

Air Deccan is yet to break even, despite more than three years of operations. According to an analyst with a brokerage firm, airlines are expected to incur losses even in the current quarter.

SpiceJet vice president (marketing), Sanjay Kumar said, “In the last two months, FSCs had reduced fares to a great extent to match the fares of LCCs. Typically, the difference in fares of FSCs and LCCs is 40%, but owing to the slack season, it has come down to 20%.

While, Air Deccan started the trend of lowering fares, other airlines including SpiceJet, GoAir and Kingfisher Airlines followed suit, leading to a situation wherein all players are bringing down fares even when it is not feasible. Interestingly, the discounted tickets offered by these carriers have doubled since last year even as their cost of operation is higher by 35% compared to LCCs. According to an analyst with a brokerage firm, FSCs have put around 70% of their tickets on the block at discounted rates during this season.

However, there might be respite for all the carriers post the slack season. Travelguru founder and CEO Ashwin Damera said, “From October, the travel season will pick up and would boost passenger load factors. In the slack season, the passenger load factors of FSCs and

LCCs have dipped to about 60% and 70% respectively. However, in the coming months, it is expected to climb to 72% for FSCs and 85% for LCCs.”