IndiGo, Jet Airways charged highest fares in July; Kingfisher i

• Posted by Sindhuri G August 30, 2012 - Filed in Business - 2,007 views

  NEW DELHI: No-frills carrier IndiGo charged the highest fares on several sectors, while so-called 'first class' airline Kingfisher was the cheapest, latest official data for July shows, showcasing yet again some of strange ironies of India's aviation business.
  
  Data from the office of the aviation regulator, the Directorate General of Civil Aviation (DGCA), shows that IndiGo and Naresh-Goyal owned Jet Airways offered the most expensive tickets on the sectors they operate last month, with the Rahul Bhatia-promoted budget carrier even managing to command higher fares than Jet in some sectors.
  
  While this may not be a feat that IndiGo would crow about, aviation experts say it was unlikely to be displeased at achieving higher fare realisations than full-price carriers, thanks largely to its rising stock among the country's air travellers because of its reputation for punctuality and good service.
  
  "Though India is a price-sensitive market, passengers have shown a clear preference for assured quality of service," said Kapil Arora, partner (infrastructure) at global consultancy firm Ernst & Young.
  
  Kingfisher Airlines is the new low-cost carrier in terms of pricing as the analysis by the aviation regulator has pointed out how the Vijay Mallya-owned carrier is offering "lower average fare than the industry average".
  
  To be sure, Kingfisher has pulled out of many routes in the North-East, which enabled pricing power for other operators, especially IndiGo.
  
  Commenting on this interesting phenomenon, a senior airline executive, who did not want his name or airline to be mentioned said: "One reason for this interesting phenomenon is the fact that when you have a large network, corporates prefer you and they pay higher."
  
  This is especially relevant in the aftermath of curtailment of Kingfisher Airlines' network, whose biggest chunk of its corporate clientele has moved to IndiGo in the recent months.
  
  "Moreover, a low-cost carrier is a low-priced carrier unless you book well in advance. Else, if all seats were sold cheap, how would it make money? This is what happens all over the world," the executive added explaining IndiGo's high fares.
  
  Sector experts say this is unusual but an interesting phenomenon. "Indigo has quietly moved into tier II and III routes where Kingfisher used to operate. It is expanding its network while one airline (KF) is shrinking and Air India is having a tumultuous time. Therefore, passengers have migrated to IndiGo for its large connectivity, giving it the power to command a premium, increasing both market share and profitability," said Pratik Mazumder, head of marketing and strategic alliance at Yatra.com.
  
  The regulator's tariff monitoring cell has studied pricing for Tier II towns and has not tracked fares on metro routes (those between Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad), as intense competition on these checks and regulates ticket prices automatically.
  
  Based on the fare-comparison chart for July, the DGCA has concluded, "Jet Airways and IndiGo are the clear market leaders to demand higher fare than their competitors."
  
  For example, IndiGo's average fare on Delhi-Patna for July has been at Rs 5,654, higher than the industry average of Rs 5,538. Similarly, for Delhi-Vishakhapatnam, IndiGo's average ticket price for July stands at Rs 7,479, higher than the industry average of Rs 7,190. For Lucknow-Bombay flights too, IndiGo has charged an average of Rs 6,875, beating the industry average at Rs 6,810.
  
  IndiGo also had the highest load factor or aircraft occupancy at 75.5% in the industry for the month of July, in spite of the high fares. Also, it was in this month that IndiGo overtook the Jet Airways group in terms of market share, taking away 27% fliers as opposed to 26.6% cornered by the Naresh Goyal-owned carrier.
  
  A recent report by airline consultancy firm Centre for Asia Pacific Aviation (CAPA), IndiGo is estimated to have made the highest profit in the quarter ended June 2012 at approximately Rs 106 crore ($18.9 million). The airline is expected to be profitable at the underlying level even without the contributions of sale and leaseback and other non-operating incomes, says CAPA.
  
  Industry experts say this phenomenon of expanding market share inspite of higher fares demonstrates that it is actually IndiGo's pricing strategy that makes it the most profitable airline in the country.
  
  Last year, by IndiGo's fifth anniversary on August 3, it had a fleet of 42 Airbus 320 aircraft and a market share of 19.2%. On its sixth birthday this year, its fleet has grown to 58 aircraft, implying that the Rahul Bhatia-promoted carrier added 16 aircraft in the last 12 months! Eight aircraft have been added to IndiGo's fleet since January and two more will come by year-end.