Air India still wary about joining the fare war

Air India is the only one domestic airline that has not joined fare war on February 19 morning. Jet Airways announced one of the biggest fire sales in domestic aviation with low ticket prices of Rs 2,250 on 20 lakh seats on the day. Within hours, IndiGo had matched Jet’s fares on many sectors; SpiceJet has already completed a similar firesale last month where it sold 10 lakh tickets at Rs 2,013 each.

On select routes, even Go Air is believed to be offering low fares. But Air India remains the last airline standing in this fierce fare war. Why is Air India letting competition get the better of itself? A senior airline official merely said the airline was monitoring fares and ticket sales closely to find out how many tickets are sold each day under this offer by each airline.

But sources indicated that Air India may launch its own offer by late tomorrow even as airline officials agree that a firesale could well prove detrimental to the airline’s finances. According to back-of-the-envelope calculations, Jet has offered between 15-20 percent of its domestic capacity at cheap fares, which effectively means ticket prices are more than halved on most sectors.

Under this fire sale, one can book a Delhi-Chennai ticket for Rs 3,800 when it would otherwise cost at least Rs 7,000-8,000. Similarly, Delhi-Bengaluru is Rs 2,850, again a discount of much more than 50 per cent on normal fares.

Our calculations show Jet Airways is offering about 6,500 seats a day across its domestic network at low fares and could well earn close to Rs 600 crore if it succeeds in selling all the 20 lakh tickets by 24 February, when the sale is slated to close. But a story on moneycontrol.com said that with this initiative, Jet is likely to improve cash flows by Rs 450 crore on account of advance bookings.

The story also quoted travel agents as saying that going by previous trends, there are atleast 30 percent cancellations by customers who indulge in impulsive buying only to cancel bookings later. As a policy, airlines do not refund amount on tickets purchased during offer period, they say.