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Air India quietly taking on budget carriers, offers cheap tickets on busy routes

Even as budget carriers wage fare wars to gain shares in market, AI has been quietly undercutting them with lowest ticket prices on busy routes.

, ET Bureau|
Updated: Jun 18, 2014, 12.03 PM IST
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India's national carrier is selling cheap tickets even closer to the travel date, indicating it is desperately trying to fill empty flights. 
India's national carrier is selling cheap tickets even closer to the travel date, indicating it is desperately trying to fill empty flights. 

MUMBAI: Even as India's four budget carriers wage fare wars to gain shares in the market, Air India has been quietly undercutting them with lowest ticket prices on busy routes.

However, India's national carrier is selling cheap tickets even closer to the travel date, indicating it is desperately trying to fill empty flights. For instance, the airline is selling flights to Bangalore-Goa on June 24 as low as 2,059 while AirAsia is selling it at 4,840. The route became popular after AirAsia India started its maiden flight on the Bangalore-Goa route last week.

On Ahmedabad-Mumbai sector, Air India is offering fares as low as 3,559 early next week while the low fare carriers are offering tickets between 5,300 and 5,900.

The obvious reason is unsold inventory, said Sharat Dhall, president, Yatra.com. Airlines typically sell cheaper seats on later travel dates and jack up fares closer to the travel dates as more of their seats get sold. Airlines having a number of unsold seats close to the date of flying would rather sell them cheap than let them fly empty.

Experts said Air India may have been caught in the wrong end of aggressive fare wars that started early this year. Low-fare carrier SpiceJet has been starting most of them, starting a chain reaction across the industry.

Market leader IndiGo has on most instances got the best advantage of these wars. It offers higher capacity than its rivals which means, passengers board its flights more than they do others' whenever there is a discount offered. Its on-time performance, although recently beaten by SpiceJet, still ensures robust passenger volumes on its flights.

"Last minute fares are a function of the required yield and seat factor. Peak hour flights will invariably have high seat factors and hence high last minute fares. Only in cases where unsold inventories are high, perhaps due to low customer preference, will the last minute fares be low," says Amber Dubey, Partner and India Head of Aerospace and Defense at global consultancy KPMG.

What could be bad news for low-fare carriers is that even for early bookings, which is the space where price wars play out between low-cost carriers, Air India is offering the lowest fares on many routes.

For example on a Bangalore-Goa flight for July 24, Air India is selling tickets at 2,059, close to 400 lower than SpiceJet. IndiGo's lowest fare on the route is 2,740.

While it gives customers one more option to fly cheaper, Air India's low fares may have negative impact on its performance. The airline is a legacy carrier which provides amenities such as food to its passengers, in turn meaning it runs costlier operations than its rivals. The carrier has been bleeding losses since 2007 and surviving primarily on cash handouts from the government. But its finances have lately shown signs of some revival. The airline earned 44 crore in passenger revenue in May, up 16% on year, according to a spokesperson. Air India carried 47,700 passengers in the month versus 45,230 a year earlier and its load factors improved to 80% from 73%.

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