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A three-way dogfight in the Indian skies

Surajeet Das Gupta with Arti Sharma and Amrita Dhar

How's this for a marketing stunt? Air Sahara wants to fill its planes and is considering sending marketing teams to places like New Delhi railway station.

Newspapers sold at the stations will be filled with flyers listing Sahara's super-cheap fares and passengers will be able to read the fares and ponder whether their next journey should be by air.

Sahara's stopping at nothing and its relentless drive to take new passengers on board has thrown the Indian aviation industry into turmoil.

Pushed into a corner by Sahara's new fare schemes and the dwindling number of air travellers, Indian Airlines and Jet Airways have been forced to respond with fare cuts of their own.

The results have wrought a revolution. For the first time ever it's cheaper to fly from Delhi to Chennai than to travel by 2nd class AC (air fares are down by 63 per cent). Even on the Delhi-Mumbai sector, where airlines make the bulk of their profits, prices have dived 36 per cent.

For almost a decade since it started flying, Jet Airways has studiously resisted getting into a price war with Indian Airlines.

But now it has plunged into the battle with gusto. Making it plain it wasn't about to be upstaged by tiny Sahara, Jet has slashed economy fares on 43 routes by between 12 per cent and a staggering 64 per cent.

Says Saroj Datta, executive director, Jet Airways: "We have pitted the fares against train fares to encourage those people who don't otherwise travel by air."

When Jet Airways swooped out of the sun, its attack triggered an instant fightback from Indian Airlines, which slashed fares on over 50 routes to nearly the same levels as Jet.

"The market conditions created by Jet Airways demanded that we match their step. We don't want to start a fare war," says Anil Goyal, commercial director, Indian Airlines.

Is this the beginning of a new era of cheap tickets in Indian aviation? Or, is it a spot of temporary turbulence that will end instantly when the lean season between August and October ends? This is always a period when the market is at its lowest ebb and this year it's worse than ever because foreign tourists are staying away from India.

Both Indian Airlines and Jet have indicated that their special offers will end on October 31.

The answer isn't clear yet. But for the first time in half-a-century, the scales may have tipped in favour of the passenger. The cosy duopoly in the air has become a triangular contest.

Also, Sahara has shown that it is going to make its rivals' life even tougher by announcing that it is also slashing business class fares.

The airline has extended its Sixer Scheme - allowing economy class passengers to buy six tickets for a rock bottom Rs 25,000 that first triggered the air wars - to business class passengers (at Rs 36,000) under the Super Sixer Scheme. As a result of the new offer, business class travel will become cheaper by 30 per cent to 60 per cent.

Earlier, it also took the market by surprise when it introduced an auction scheme on various routes under which passengers could bid for tickets at rock bottom prices. And this offer is valid throughout the year.

Uttam Kumar Bose, CEO, Air Sahara is unrepentant about his aggressive, quickfire price cuts. "When we started the auction scheme (under which a limited number of tickets to various destinations are offered to the highest bidders) everyone blamed us for starting a fare war. Now everyone is following suit."

But it isn't only Bose's marketing moves that have brought dark clouds on the horizon for the bigger airlines. The numbers in the aviation game, for the first time, have been turning against the airlines and the culprit is capacity. A year ago, Sahara had some 5,000 seats to sell daily. Today, Sahara has bought four new planes and it now offers 7,500 seats a day.

It's the same story at Jet Airways that has been expanding furiously over the last few years. The airline now has 38 planes and offers 29,500 seats daily.

That's up from 24,100 in January, 2001. The new planes couldn't have come at a worse time for both airlines.

The number of air passengers has fallen due to a variety of reasons during the past year. As a result, the passenger load factor - the most critical number for any airline - has been falling to below break-even levels. The PLF is the percentage of paid seats that are filled on every flight.

According to preliminary statistics for June, for instance, the industry's average PLF fell to 53 per cent in June from 57 per cent in May. And the number of passengers fell by over 140,000 during the same period. Most airline executives reckon a PLF of around 58 per cent to 60 per cent is needed to break even.

Even Indian Airlines is working on a PLF of around 50 per cent to 54 per cent, which means that out of the 34,000 seats it offers every day, only 17,000 to 18,000 are sold. Worse, even during the peak season (last November to April) the PLF on Indian Airlines has been around 3 per cent to 5 per cent lower than its peak range of 70 per cent.

How much difference can the cheap tickets make? Can volumes make up for price cuts? Have the airlines done their homework carefully before introducing the new fares? Indian Airlines believes it will be able to boost the number of flyers by around 5 per cent in the lean season.

The optimism is based on the fact there are 14 million passengers who travel by AC 2-tier and AC First Class annually. Even if a fraction move into the skies, it could make all the difference for the airline industry.

Travel agents, who keep their finger firmly on the industry's pulse, however, are sceptical and believe the situation is direr than the airlines would like to admit.

Avinash Anand, managing director, Tradewinds, says air travel has fallen by over 20 per cent. That's because foreign travellers aren't coming to India and also because fewer Indians are travelling.

Jet Airways has been especially hard hit by the events of the last few months. Jet depends substantially on foreign travellers and the number of foreigners travelling to India has fallen by about 6 per cent to 7 per cent post-September 11 and the American travel advisories that were issued at the peak of the Indo-Pak standoff.

Dollar fares usually account for about 28 per cent of Jet's revenues and that has fallen to about 22 per cent.

The travel agents have other reasons to be doubtful about the fare wars. They question why the airlines have launched a price battle aimed at the leisure traveller during the low season.

Schools have just opened and families have probably returned from their summer holidays. Very few Indians plan holidays between now and the festival season when the special offers will have ended.

Some industry experts say the airlines have been at this fork in the skies before. In 2000, both Indian Airlines and Jet cut fares temporarily in a bid to win more passengers. "It did not attract one extra passenger," says an airline executive. Datta disagrees: "That scheme was very different."

The arrival of Air Sahara has also taken its toll. One year it was a new kid on the block with an insignificant market share.

Now its savvy pricing schemes have succeeded in wresting market share in a stagnant and declining market. The airline claims it already has around 10 per cent share (industry claims it is around 6 per cent to 8 per cent).

But Sahara has certainly queered the pitch for the other airlines. Both its auction scheme and the astonishing Rs 25,000 offer in the economy class without any strings, like advanced booking, attached can't be matched by the bigger airlines without risking their financial health.

What's more, analysts say it has already wooed a chunk of corporate travellers by offering a 5 per cent discount on bulk deals for companies that spend around Rs 7.5 million annually.

Competitors have a similar offer but it ranges from Rs 20 million to Rs 30 million. Says B Mayal, president, New Airways Travels: "Both the Sixer and the bulk deals are getting a lot of queries because they do not have any conditions attached."

It should, of course, be said that by international standards there's nothing earthshaking or innovative about what both Jet and Indian Airlines are doing. India's airline fares are amongst the most expensive in the world.

That's because Indian Airlines has always refused to sell its seats at a discount and Jet also followed the same practice. As a result, until the new fares came into existence, it was cheaper to fly from Delhi to Singapore or Malaysia than to fly to a destination in Kerala.

Bose believes the country's two giants have been operating on wrong principles. "Seats are a perishable commodity. So when seats are going empty it makes sense to fill them even at lower fares. If you don't, you lose that revenue for ever."

European and American airlines have been discounting for decades and they've angled tickets to ensure that business flyers pay full price but leisure tourists pay far less. A two-way ticket from London to Cologne, for instance, costs around £280 on weekdays but can be £80 if the traveller stays over on a Saturday night.

But travel agents aren't impressed by the new schemes on offer. They say that the steep cancellation charges and the rule by which cheap tickets must be bought 21 days in advance are a major disincentive.

Have the airlines made a wrong move? They've certainly managed to make everyone sit up and take notice. Even the Railway Board will consider whether to lower prices on the Rajdhanis so that they aren't costlier than air travel. And, if cheap prices are here to stay it could be a new mid-air dawn for Indian travellers.

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